Do Consumer-Directed Tax Credits Effectively Increase Demand? Experimental Evidence of Conditional Success

ABSTRACTWe investigate whether consumer-directed tax credits motivate purchasing behavior in the same manner as traditional retail concessions (e.g., price discounts). In our experimental study, consumers choose between relatively expensive incentivized products and less expensive standard products. Consistent with negative views toward taxation (Moon 2009) and the default-interventionist model of dual process theories (Evans and Stanovich 2013a; Evans 2011), when the price difference between incentivized and standard products is small, tax credits are a less effective way to encourage demand than traditional retail concessions. However, when the price difference between incentivized and standard products is large, tax credits become a relatively effective purchase inducement. Our results suggest that public policy can be improved by considering the economic setting of tax-incentivized items.JEL Classifications: H21.