Elasticities and tax incidence in urban ridesharing markets: Evidence from Chicago

Abstract

Over the past decade, many U.S. cities have imposed taxes on Uber and Lyft, leading to debate over the impacts and incidence of these policies. This paper answers three questions about these taxes: (i) How do ridesharing taxes impact trip prices and quantities? (ii) What are the implied market supply and demand elasticities, and (iii) Who bears the burden of ridesharing taxes? Using data from Chicago, I show that ridesharing demand is inelastic in both gross terms, and relative to supply. Accordingly, 89% of the city’s ridesharing tax is passed through to passengers. From a distributional standpoint, travel survey data suggest that ridesharing taxes are roughly as progressive as the federal income tax schedule. Finally, back-of-the-envelope calculations informed by these results suggest that ridesharing taxes of the size typically seen in the U.S. are unlikely to generate meaningful improvements in congestion or air pollution.