RETAIL PRICE REACTIONS TO CHANGES IN STATE AND LOCAL SALES TAXES

This paper tests the hypothesis that state and local retail sales taxes are fully shifted to consumers. The empirical analysis focuses on city-specific clothing price indices for eight cities during the 1947-77 period and fourteen cities during the 1925-39 period. The results for the postwar period suggest that retail prices rise by approximately the amount of the sales tax, in contrast to other studies that reveal tax overshifting. For the Depression period, clothing prices appear to rise by only two-thirds of the amount of sales taxes. This finding accords with earlier evidence based on retailer surveys in the interwar period.

[1]  C. Shoup,et al.  The Sales Tax in the American States , 1934 .

[2]  H. G. Brown.  The Incidence of a General Output or a General Sales Tax , 1939, Journal of Political Economy.

[3]  N. H. Jacoby,et al.  Retail sales taxation : relation to business and consumers, and administrative problems , 1940 .

[4]  J. Due.  The theory of incidence of sales taxation , 1943 .

[5]  Earl R. Rolph.  A Proposed Revision of Excise-tax Theory , 1952, Journal of Political Economy.

[6]  David G. Davies,et al.  The Theory of Public Finance , 1960 .

[7]  G. Perry,et al.  THE EFFECTS OF THE 1965 FEDERAL EXCISE TAX REDUCTIONS ON PRICES , 1967, National Tax Journal.

[8]  R. Bishop.  The Effects of Specific and Ad Valorem Taxes , 1968 .

[9]  N. D. Sidhu.  The effects of changes in sales tax rates on retail prices , 1971 .

[10]  J. Pechman,et al.  Who Bears the Tax Burden? Studies of Government Finance Series. , 1974 .

[11]  J. Pechman,et al.  Who bears the tax burden , 1974 .

[12]  D. Sumner.  Measurement of Monopoly Behavior: An Application to the Cigarette Industry , 1981, Journal of Political Economy.

[13]  J. Mikesell,et al.  Sales Taxation: State and Local Structure and Administration , 1983 .

[14]  Tax Analysis in an Oligopoly Model , 1983 .

[15]  Paul C. Pfleiderer,et al.  A Note on the Effect of Cost Changes on Prices , 1983, Journal of Political Economy.

[16]  Edgar K. Browning.  TAX INCIDENCE, INDIRECT TAXES, AND TRANSFERS , 1985, National Tax Journal.

[17]  Daniel P. Sullivan.  Testing Hypotheses about Firm Behavior in the Cigarette Industry , 1985, Journal of Political Economy.

[18]  John Whalley,et al.  A General Equilibrium Model for Tax Policy Evaluation , 1985 .

[19]  J. Poterba,et al.  A Tax-Based Test for Nominal Rigidities , 1985 .

[20]  J. Due.  TAX INCIDENCE, INDIRECT TAXES, AND TRANSFERS—A COMMENT , 1986, National Tax Journal.

[21]  N. Stern.  The effects of taxation, price control and government contracts in oligopoly and monopolistic competition , 1987 .

[22]  Jeffrey E. Harris,et al.  The 1983 Increase in the Federal Cigarette Excise Tax , 1987, Tax Policy and the Economy.

[23]  Robert E. Hall,et al.  The Relation between Price and Marginal Cost in U.S. Industry , 1988, Journal of Political Economy.

[24]  H. Rosen,et al.  Sales Taxes and Prices: An Empirical Analysis , 1998, National Tax Journal.