Public Economics.

• Position: Program and Working Group Meetings - National Bureau of Economic Research

The NBER's Program on Public Economics met in Cambridge on April 5-6. NBER Faculty Research Fellows Mark Duggan, University of Maryland, and Amy Finkelstein, MIT, organized the meeting. These papers were discussed:

Raj Chetty, University of California, Berkeley and NBER; Kory Kroft, University of California, Berkeley, and Adam Looney, Federal Reserve Board, "Salience and Taxation"

Discussant: Erzo F. P. Luttmer, Harvard University and NBER

Amy Finkelstein, "E-Z Tax: Tax Salience and Tax Rates"

Discussant: Austan Goolsbee, University of Chicago and NBER

Emmanuel Saez, University of California, Berkeley and NBER; and Henrik J. Kleven and Claus T. Kreiner, University of Copenhagen, "The Optimal Income Taxation of Couples"(NBER Working Paper No. 12685)

Discussant: Nada Eissa, Georgetown University and NBER

Mariacristina De Nardi, Federal Reserve Bank of Chicago and NBER; John Bailey Jones, State University of New York, Albany; and Eric French, Federal Reserve Bank of Chicago, "Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles"

Discussant: John Karl Scholz, University of Wisconsin, Madison and NBER

Dan Silverman, University of Michigan and NBER, and John Laimer, University of Michigan, "Consumption, Retirement, and Social Security: Evaluating the Efficiency of Reform that Encourages Longer Careers"

Discussant: Jeffrey B. Liebman, Havard University and NBER

Ivan Werning, MIT and NBER, "Pareto Efficient Income Taxation" Discussant: Wojciech Kopczuk, Columbia University and NBER

A central assumption in public finance is that individuals optimize fully with respect to the incentives created by tax policies. In this paper, Chetty, Kroft, and Looney test this assumption using two empirical strategies. First, they conducted an experiment at a grocery store where they posted tax-inclusive prices for 750 products subject to sales tax for a three-week period. They find that posting tax-inclusive prices reduced demand by roughly 7 percent among the treated products relative to control products and nearby control stores. Second, they find that state-level increases in excise taxes (which are included in posted prices) reduce alcohol consumption significantly more than increases in sales taxes (which are added at the register and hence are less salient). Both sets of results indicate that tax salience affects behavioral responses. The researchers propose a simple bounded rationality model to explain why salience matters...