Walking in Paris: Tipping and Tax Incidence
I visited Europe with my family twice in 2024, visiting Copenhagen during the summer and Paris over Thanksgiving break. Many things stood out, but here are two that I would love to see transported across the Atlantic: posted prices that reflect all the relevant taxes, and no tipping custom.
Why? After all, " a tax's economic incidence doesn't depend on its legal incidence" is a staple of introductory economics courses, and whether the buyer or seller pays the tax is six of one, half a dozen of the other. However, different taxes in different jurisdictions mean having to know whether you're multiplying the list price by 1.1, 1.05, 1.08, or 1.0whatever.
As for tipping, I like not adding an extra 0.15, 0.18, or 0.20 to the math I'm already doing.
Both of these strictly matters of convenience for me, squarely in the "you kids get off my lawn and quit skating on the sidewalk!" territory. As a policy matter, I think there is more to recommend pricing transparency. Years ago, I was struck by an example in Charles Murray's Real Education that drove home what it means to be "average" at Math in the US. Eighth graders were asked "There were 90 employees in a company last year. This year the number of employees increased by 10 percent. How many employees are in the company this year?" with options of 9, 81, 91, 99, and 100. 62% of students got the question wrong. Murray argues, based on a simple adjustment for guessing, that 77.5% of students did not know the correct answer.
A quick Google search turns up Department of Education data suggesting that about a third of US adults have "low numeracy skills in English," meaning that they do not "have sufficient numeracy skills to make calculations with whole numbers and percentages, estimate numbers or quantity, and interpret simple statistics in test or tables."
Transparent pricing seems like a relatively simple change that would make people's lives easier--but the fact that we're not doing it suggests something else is at work. Why don't we make what seems to this humble economist to be an obvious change?