Tax Incidence Anomalies

This paper reviews the literature on the incidence of consumption and labor taxes and focuses on the empirical results that show stark departures from the canonical model of tax incidence, which I refer to as anomalies. In particular, there is mounting evidence questioning three fundamental implications of the canonical model: (1) that statutory incidence is irrelevant for economic incidence, (2) that the relative magnitude of the demand and supply elasticities is a sufficient statistic for tax incidence, and (3) that incidence is symmetric for increases and decreases. I review this empirical evidence and draw implications for the canonical model’s relevance.