Aviation taxation and tax incidence

This paper investigates tax incidence resulting from the 'combined unit tax' levied on domestic air travel. Using a panel dataset and estimating with first-differences, I find that domestic aviation taxes are over-shifted to passengers by 30-70 cents per dollar tax. A potential nonlinear relationship between tax and fare changes is detected. The results are essential to future studies on tax salience. Seasonal effects are the most pronounced in periods with high demand. I extend the literature by providing fresh evidence of tax incidence in the airline industry and complementing the over-shifting results found in other industries.