Sales tax vs. VAT

An interesting paper by Chetty, Looney and Kroft (2008) looks at tax incidence with salience. What this means is that in standard economic theory the economic incidence (i.e. who will bear the tax burden) does not depend on whether a tax is levied on consumers or producers. Matter of fact, the only thing that determines economic incidence is the relative price elasticities of demand and supply.

However, a key assumption for this is that consumers always incorporate the tax into their decision-making. As the paper mentioned above shows, this may not always be the case.