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Did Distortionary Sales Taxation Contribute to the Growth of the Service Sector?

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  • Merriman, David
  • Skidmore, Mark

Abstract

Since the 1950s, the sales tax has become much more widely used as a source of state government revenue and the average sales tax rate has greatly increased. During this period, the service sector has grown rapidly relative to other sectors of the economy. We hypothesize that increased sales taxation has played a role in the growth of the service sector, because states typically exempt sales of services from the sales tax unless explicitly enumerated, while final purchases of goods are taxed unless explicitly exempted. Our empirical results suggest that increased sales taxation is responsible for as much as one-third of the decline in the retail sector and one-eighth of the increase in the service sector during the 1982-92 period.

Suggested Citation

  • Merriman, David & Skidmore, Mark, 2000. "Did Distortionary Sales Taxation Contribute to the Growth of the Service Sector?," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(1), pages 125-142, March.
    • Handle: RePEc:ntj:journl:v:53:y:2000:i:1:p:125-42
    DOI: 10.17310/ntj.2000.1.07
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    Cited by:

    1. Gary C. Cornia & Scott Grimshaw & Ray Nelson & Lawrence Walters, 2010. "The Effect of Local Option Sales Taxes on Local Sales," Public Finance Review, , vol. 38(6), pages 659-681, November.
    2. Benjamin Russo, 2005. "An Efficiency Analysis of Proposed State and Local Sales Tax Reforms," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 443-462, October.
    3. Luna, LeAnn & Bruce, Donald J. & Hawkins, Richard R., 2007. "Maxing Out: An Analysis of Local Option Sales Tax Rate Increases," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(1), pages 45-63, March.
    4. William F. Fox & Matthew N. Murray, 2005. "Sales Taxation in a Global Economy," Contributions to Economic Analysis, in: Taxing the Hard-to-tax: Lessons from Theory and Practice, pages 221-244, Emerald Group Publishing Limited.
    5. Reed, W. Robert & Rogers, Cynthia L & Skidmore, Mark, 2011. "On Estimating Marginal Tax Rates for U.S. States," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(1), pages 59-84, March.
    6. W. Robert Reed & Cynthia L. Rogers & Mark Skidmore, 2008. "On Estimating Marginal Tax Rates and Tax Progressivities for U.S. States," Working Papers in Economics 08/17, University of Canterbury, Department of Economics and Finance.

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