In-Kind Taxes, Behavior, and Comparative Advantage

This paper treats taxation in kind (IKT) as an example of price regulation, emphasizing IKT-avoidance behavior, and its interactions with the other costs of price controls. This emphasis fundamentally changes efficiency conclusions, and adds new ones. IKTs do not in fact randomly sample suppliers, and the burdens of IKTs are not limited to the hidden tax paid by suppliers that actually transact at the controlled price. The approach also points to an alternative efficiency argument against IKTs and to a different mix of the efficiency losses. Large-scale IKTs, and not small-scale ones, may have especially large average costs. Ransoms or “commutation fees” are an IKT policy option, but are only efficiency enhancing in specific situations: more heterogeneity among suppliers, and avoidance technologies that result in avoidance behaviors that are poor signals of a supplier’s opportunity cost. * I appreciate discussions with Gary Becker, John List, Andrei Shleifer, Kevin Tsui, John Warner, seminar participants at DePaul, Clemson, and the financial support of the University of Chicago’s Stigler Center for the Study of the Economy and the State.