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Popular Substitution Effects: Excess Burden Estimates for General Sales Taxes

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  • Hawkins, Richard R.

Abstract

In this paper, a partial equilibrium model is used to evaluate the efficiency of some popular sales tax structures, including structures with pyramiding from levies on production inputs. The results generally support expectations--inefficiency increases when retail exemptions are large and the general rate is high--but two findings are surprising. First, the input taxes considered here fall heavily on price-inelastic and exempt goods and actually improve tax efficiency. Second, equal-yield sales tax systems can have different median tax payments and a large majority of households may prefer exemptions and high rates.

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  • 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.
    • Handle: RePEc:ntj:journl:v:55:y:2002:i:4:p:755-70
    DOI: 10.17310/ntj.2002.4.06
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    Cited by:

    1. Richard Hawkins & Sally Wallace, 2006. "Source of income effects for demand decisions and taxable consumption," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2371-2379.
    2. Thomas Stratmann, 2017. "The political economy of sales taxes and sales tax exemptions," Public Choice, Springer, vol. 171(1), pages 207-221, April.
    3. Athiphat Muthitacharoen & George R. Zodrow, 2008. "The Efficiency Costs of Local Property Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0815, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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