TY  - JOUR
AU  - Besley,Timothy J.
AU  - Rosen,Harvey S.
TI  - Sales Taxes and Prices:  An Empirical Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6667
PY  - 1998
Y2  - July 1998
UR  - http://www.nber.org/papers/w6667
L1  - http://www.nber.org/papers/w6667.pdf
N1  - Author contact info:
Timothy J. Besley
Department of Economics
London School of Economics
Houghton Street
London  WC2A 2AE  ENGLAND
E-Mail: T.Besley@lse.ac.uk

Harvey S. Rosen
Department of Economics
Fisher Hall
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-4022
Fax: 609/258-6419
E-Mail: HSR@princeton.edu
AB  - 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.
ER  -