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Economic Effects of Including Services in the Sales Tax Base: an Applied General Equilibrium Analysis

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  • Donald N. Baum

    (University of Nebraska at Omaha)

Abstract

An applied general equilibrium model is employed to determine the effects of including additional services in the sales tax base. This approach allows the incidence of the base-broadening policy to be determined when all prices and quantities are variable. The base-broadening policy is a potential Pareto-improvemen, its differential incidence is progressive, and the policy reduces (increases) the quantity of labor supplied by the lower (higher) income households. The latter result, upward-sloping labor supply curves with respect to both the cost of living and the wage, is surpriseng. The source of this result is that the income effect on labor-leisure choice of a change in the cost of living is larger than the income effect of a change in the wage.

Suggested Citation

  • Donald N. Baum, 1991. "Economic Effects of Including Services in the Sales Tax Base: an Applied General Equilibrium Analysis," Public Finance Review, , vol. 19(2), pages 166-192, April.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:2:p:166-192
    DOI: 10.1177/109114219101900203
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    References listed on IDEAS

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    1. Fox, William F. & Murray, Matthew N., 1988. "Economic Aspects of Taxing Services," National Tax Journal, National Tax Association, vol. 41(1), pages 19-36, March.
    2. Earl R. Rolph, 1952. "A Proposed Revision of Excise-tax Theory," Journal of Political Economy, University of Chicago Press, vol. 60(2), pages 102-102.
    3. Quick, Perry D. & McKee, Michael J., 1988. "Sales Tax on Services: Revenue or Reform?," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(3), pages 395-409, September.
    4. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226036335, August.
    5. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Introduction to "A General Equilibrium Model for Tax Policy Evaluation"," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 1-5, National Bureau of Economic Research, Inc.
    6. Fox, William F. & Murray, Matthew N., 1988. "Economic Aspects of Taxing Services," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 19-36, March.
    7. Hellerstein, Walter, 1988. "Florida's Sales Tax on Services," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 1-18, March.
    8. Quick, Perry D. & McKee, Michael J., 1988. "Sales Tax on Services: Revenue or Reform?," National Tax Journal, National Tax Association, vol. 41(3), pages 395-409, September.
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    Cited by:

    1. Derrick, Frederick W. & Scott, Charles E., 1998. "Sales tax equity: Who bears the burden?," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(2), pages 227-237.

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