Stephanie G. Johnson
Department of Economics
2211 Campus Drive
Evanston, IL 60208
NBER Working Papers and Publications
|August 2017||Shopping for Lower Sales Tax Rates|
with Scott R. Baker, Lorenz Kueng: w23665
Using comprehensive high-frequency state and local sales tax data, we show that household spending responds strongly to changes in sales tax rates. Even though sales taxes are not observed in posted prices and have a wide range of rates and exemptions, households adjust in many dimensions, stocking up on storable goods before taxes rise and increasing online and cross-border shopping. Interestingly, households adjust spending similarly for both taxable and tax-exempt goods. We embed an inventory problem into a continuous-time consumption-savings model and demonstrate that this seemingly irrational behavior is optimal in the presence of shopping trip fixed costs. The model successfully matches estimated short-run and long-run tax elasticities with a reasonable implied reservation wage of $7...