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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.

Suggested Citation

  • Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 157-178, June.
  • Handle: RePEc:ntj:journl:v:52:y:1999:i:2:p:157-78
    DOI: 10.1086/NTJ41789387
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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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