The political economy of sales taxes and sales tax exemptions
- 386 Downloads
I analyze the choice politicians face when seeking votes from groups that lobby for sales tax rate decreases or tax exemptions, given the constraint that politicians want to raise a certain amount of revenue. Using data on sales taxes, I develop a model predicting a positive relationship between the number of exemptions and the sales tax rate. The estimation results provide support for this prediction. Each additional exemption is associated with an increase of between 0.10 and 0.25 percentage points in the tax rate.
KeywordsSales taxes Tax exemptions State politics Interest groups
This paper is based on a my co-authored working paper with (Militaru and Stratmann 2014).
- Anderson, G. M., Martin, D. T., & Tollison, R. D. (1987). Do tax loopholes increase or decrease tax revenue? Journal of Public Finance and Public Choice, 5, 83–95.Google Scholar
- Besley, T. J., & Rosen, H. S. (1998). Sales taxes and prices: an empirical analysis. NBER Working Paper No. 6667. National Bureau of Economic Research.Google Scholar
- Chouinard, H. H., Davis, D. E., LaFrance, J. T., & Perloff, J. M. (2006). Fat taxes: big money for small change. Working Paper No. 1007. Department of Agricultural and Resource Economics and Policy, University of California at Berkeley.Google Scholar
- Hall, B. H. (1999). Effectiveness of the California R&D credit. California Council on Science and Technology. http://www.ccst.us/publications/1999/CREST4.pdf.
- Hansmann, H. (1987). The effect of tax exemption and other factors on the market share of non-profit versus for-profit firms. National Tax Journal, 40, 71–82.Google Scholar
- Ihlanfeldt, K. R. (1995). Ten principles for state tax incentives. Economic Development Quarterly, 15, 339–355.Google Scholar
- Militaru, A. & Stratmann T. (2014). A Survey of Sales Tax Exemptions in the States: Understanding Sales Taxes and Sales Tax Exemptions Working Paper No. 14, Mercatus Center at George Mason University.Google Scholar