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The political economy of sales taxes and sales tax exemptions

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  • Thomas Stratmann

    (George Mason University)

Abstract

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.

Suggested Citation

  • Thomas Stratmann, 2017. "The political economy of sales taxes and sales tax exemptions," Public Choice, Springer, vol. 171(1), pages 207-221, April.
    • Handle: RePEc:kap:pubcho:v:171:y:2017:i:1:d:10.1007_s11127-017-0434-z
    DOI: 10.1007/s11127-017-0434-z
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    References listed on IDEAS

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    1. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 157-178, June.
    2. Donald Bruce & William F. Fox & M.H. Tuttle, 2006. "Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics," Southern Economic Journal, John Wiley & Sons, vol. 73(2), pages 315-341, October.
    3. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    4. Keith R. Ihlanfeldt, 1995. "Ten Principles for State Tax Incentives," Economic Development Quarterly, , vol. 9(4), pages 339-355, November.
    5. Chouinard Hayley H & Davis David E & LaFrance Jeffrey T & Perloff Jeffrey M, 2007. "Fat Taxes: Big Money for Small Change," Forum for Health Economics & Policy, De Gruyter, vol. 10(2), pages 1-30, June.
    6. Hawkins, Richard R., 2002. "Popular Substitution Effects: Excess Burden Estimates for General Sales Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(4), pages 755-770, December.
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    Cited by:

    1. Rehman Faiz Ur & Nasir Muhammad, 2020. "In the Same Boat, but not Equals: The Heterogeneous Effects of Indirect Taxation on Child Health in Punjab-Pakistan," Asian Journal of Law and Economics, De Gruyter, vol. 11(3), pages 1-26, December.
    2. Faiz Ur Rehman & Muhammad Nasir, 2018. "In the Same Boat, but not Equals: The Heterogeneous Effects of Indirect Taxation on Child Health in Punjab-Pakistan," PIDE-Working Papers 2018:158, Pakistan Institute of Development Economics.

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    More about this item

    Keywords

    Sales taxes; Tax exemptions; State politics; Interest groups;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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