RETAIL PRICE REACTIONS TO CHANGES IN STATE AND LOCAL SALES TAXES

James M. Poterba

291 citations0/0 files storedNational Tax Journal

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Economic and Fiscal Studies Local Government Finance and Decentralization Consumer Market Behavior and Pricing

Abstract

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.

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References

1988The Relation between Price and Marginal Cost in U.S. Industry 1983A Note on the Effect of Cost Changes on Prices 1986A General Equilibrium Model for Tax Policy Evaluation 1985Tax Analysis in an Oligopoly Model

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