Thursday, April 22, 2010

Taxing for Takeoff

Blog readers may be interested to read Edward Haung & Adib Kanafani's working paper, Taxing for Takeoff: Estimating Airport Tax Incidence Through Natural Experiments (Apr. 17, 2010) (available at SSRN here).  From the abstract:

We view the different start dates of U.S. airport taxes as replicated natural experiments. In each, a portion of plane tickets are subject to a new tax of $3. We show that airlines, in response, raise nonstop fares by $6.5 and overshift the tax onto their nonstop passengers; however, they keep connecting fares little changed and appear burdened by the tax. The results suggest that airport taxes and other similar taxes encourage airlines to provide more nonstop services, and we argue that these taxes can be redesigned to promote both efficiency and equity.

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