NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sales Taxes and Prices: An Empirical Analysis

Timothy J. Besley, Harvey S. Rosen

NBER Working Paper No. 6667
Issued in July 1998
NBER Program(s):   PE

One of the most fundamental questions in public finance is who bears the burden of taxes -- the incidence of taxation.' Our understanding of incidence from an empirical standpoint is quite meager. Indeed, there seems to be little evidence even in the case that is theoretically the easiest -- partial equilibrium commodity taxes. Are taxes levied on commodities completely shifted into their prices, or does the incidence also fall on firms? How long does the shifting process take? In this paper we employ a unique data source to examine the incidence of sales taxes. The main idea is to take information on the prices of specific commodities in different U.S. cities and to examine the extent to which differences in tax rates and bases are reflected in prices, controlling for other factors (such as costs). We find a surprising variety of shifting patterns. For some commodities, the after-tax price increases by exactly the amount of the tax, a result consistent with the standard competitive model. However, taxes on other commodities are overshifted -- an increase in tax revenue of one dollar per unit increases the price by more than one dollar.

download in pdf format
   (1173 K)

email paper

This paper is available as PDF (1173 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6667

Published: National Tax Journal, Vol. 52, no. 2 (June 1999): 157-178.

Users who downloaded this paper also downloaded these:
Fullerton and Metcalf w8829 Tax Incidence
Katz and Rosen w1088 Tax Analysis in an Oligopoly Model
Doyle and Samphantharak w12266 $2.00 Gas! Studying the Effects of a Gas Tax Moratorium
Feenberg, Mitrusi, and Poterba Distributional Effects of Adopting a National Retail Sales Tax
Kotlikoff and Summers w1864 Tax Incidence
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us