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Sales Taxes and Prices: An Empirical Analysis

Listed author(s):
  • Besley, Timothy J.
  • Rosen, Harvey S.

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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File URL: https://www.ntanet.org/NTJ/52/2/ntj-v52n02p157-78-sales-taxes-prices-empirical.html
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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 52 (1999)
Issue (Month): 2 (June)
Pages: 157-178

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Handle: RePEc:ntj:journl:v:52:y:1999:i:2:p:157-78
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  1. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
  2. Poterba, James M & Rotemberg, Julio J & Summers, Lawrence H, 1986. "A Tax-Based Test for Nominal Rigidities," American Economic Review, American Economic Association, vol. 76(4), pages 659-675, September.
  3. Moriak, Theo F. & Logan, Samuel H., 1971. "Monthly Retail Demand for Bread," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 3.
  4. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
  5. Timothy Besley & Anne Case, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 769-798.
  6. Boehm, William T., 1975. "The Household Demand for Major Dairy Products in the Southern Region," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 7(02), pages 187-196, December.
  7. 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.
  8. Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
  9. Jeffrey E. Harris, 1987. "The 1983 Increase in the Federal Cigarette Excise Tax," NBER Chapters,in: Tax Policy and the Economy, Volume 1, pages 87-112 National Bureau of Economic Research, Inc.
  10. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, vol. 49(2), pages 165-176, June.
  11. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
  12. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  13. Kotlikoff, Laurence J. & Summers, Lawrence H., 1987. "Tax incidence," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092 Elsevier.
  14. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
  15. Karp, Larry S & Perloff, Jeffrey M, 1989. "Estimating Market Structure and Tax Incidence: The Japanese Television Market," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 225-239, March.
  16. Michael L. Katz & Harvey S. Rosen, 1983. "Tax Analysis in an Oligopoly Model," NBER Working Papers 1088, National Bureau of Economic Research, Inc.
  17. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
  18. 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, vol. 44(4), pages 380-397, October.
  19. Boehm, William T., 1975. "The Household Demand For Major Dairy Products In The Southern Region," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 7(02), December.
  20. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
  21. Besley, Timothy, 1989. "Commodity taxation and imperfect competition : A note on the effects of entry," Journal of Public Economics, Elsevier, vol. 40(3), pages 359-367, December.
  22. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, vol. 49(2), pages 165-76, June.
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