Atlantic Economic Journal

, Volume 23, Issue 4, pp 267–277 | Cite as

Sales tax exemptions and credits: Time to reevaluate

  • Frederick W. Derrick
  • Charles E. Scott


The state sales tax is an inherently regressive source of revenue. This has given rise to attempts to counter the regressivity through adjustments to the basic sales tax structure through credits and exemptions. Two new alternatives appear to have both theoretical and practical advantages over simple credits and exemptions: the use of a debit card for delivering sales tax credits and a negative credit related to potential tax liability. They have the theoretical advantages of both the credit and the exemption while not having the administrative difficulties of the credit or the revenue loss of the exemption. Empirical analysis using the Consumer Expenditure Survey and the Maryland tax code indicates that the state can reduce regressivity and raise substantial revenue using either alternative. The proposed gains can be made with enhanced revenue stability, little administrative cost, and little impact on horizontal equity or efficiency.


Consumer Expenditure Debit Card Revenue Loss Basic Sale Horizontal Equity 
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Copyright information

© Atlantic Economic Society 1995

Authors and Affiliations

  • Frederick W. Derrick
    • 1
  • Charles E. Scott
    • 1
  1. 1.Loyola College in MarylandUSA

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