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Sales Taxes and Prices: An Empirical Analysis

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  • Besley, Timothy J.
  • Rosen, Harvey S.

Abstract

We employ a unique data source to examine the incidence of sales taxes. The main idea is to take information on the prices of specific commodities in different U.S. cities and to examine the extent to which differences in tax rates and bases are reflected in prices, controlling for other factors (such as costs). We find a surprising variety of shifting patterns. For some commodities, the after-tax price increases by exactly the amount of the tax, a result consistent with the standard competitive model. However, taxes on other commodities are overshifted--an increase in tax revenue of one dollar per unit increases the price by more than one dollar.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 52 (1999)
Issue (Month): n. 2 (June)
Pages: 157-78

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Handle: RePEc:ntj:journl:v:52:y:1999:i:n._2:p:157-78

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  1. Jeffrey E. Harris, 1987. "The 1983 Increase in the Federal Cigarette Excise Tax," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, Volume 1, pages 87-112 National Bureau of Economic Research, Inc.
  2. Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 41(1), pages 127-151, December.
  3. James M. Poterba & Julio J. Rotemberg & Lawrence H. Summers, 1985. "A Tax-Based Test for Nominal Rigidities," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 376, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, Elsevier, vol. 31(3), pages 255-274, April.
  5. Karp, Larry & Perloff, Jeffrey M, 1987. "Estimating market structure and tax incidence: the Japanese television market," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt8769c17g, Department of Agricultural & Resource Economics, UC Berkeley.
  6. Alcaly, Roger E & Klevorick, Alvin K, 1971. "Food Prices in Relation to Income Levels in New York City," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 44(4), pages 380-97, October.
  7. Kotlikoff, Laurence J. & Summers, Lawrence H., 1987. "Tax incidence," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092 Elsevier.
  8. Alan S. Blinder, 1991. "Why are Prices Sticky? Preliminary Results from an Interview Study," NBER Working Papers 3646, National Bureau of Economic Research, Inc.
  9. Michael L. Katz & Harvey S. Rosen, 1983. "Tax Analysis in an Oligopoly Model," NBER Working Papers 1088, National Bureau of Economic Research, Inc.
  10. MacDonald, James M. & Nelson, Paul Jr., 1991. "Do the poor still pay more? Food price variations in large metropolitan areas," Journal of Urban Economics, Elsevier, vol. 30(3), pages 344-359, November.
  11. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 260, University of Warwick, Department of Economics.
  12. Moriak, Theo F. & Logan, Samuel H., 1971. "Monthly Retail Demand for Bread," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, United States Department of Agriculture, Economic Research Service, issue 3.
  13. Rudiger Dornbusch, 1985. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc.
  14. Besley, Timothy, 1989. "Commodity taxation and imperfect competition : A note on the effects of entry," Journal of Public Economics, Elsevier, Elsevier, vol. 40(3), pages 359-367, December.
  15. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  16. Timothy Besley & Anne Case, 1993. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," NBER Working Papers 4575, National Bureau of Economic Research, Inc.
  17. Sofia Delipalla & Michael Keen, 1991. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition," Working Papers, Queen's University, Department of Economics 821, Queen's University, Department of Economics.
  18. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, National Tax Association, vol. 49(2), pages 165-76, June.
  19. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  20. Boehm, William T., 1975. "The Household Demand For Major Dairy Products In The Southern Region," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 7(02), December.
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