Shopping for lower sales tax rates Scott R. Baker, Stephanie Johnson and Lorenz Kueng
By: Baker, Scott R
.
Contributor(s): Johnson, Stephanie | Kueng, Lorenz.
Material type: 
ArticlePublisher: 2021Subject(s): VENTAS | IMPUESTOS | TIPOS DE GRAVAMEN | CONSUMO | CONSUMO FAMILIAR | ESTADOS UNIDOS | MODELOS ECONOMETRICOS
In:
American Economic Journal : Macroeconomics v. 13, n. 3, July 2021, p. 209-250Summary: Using comprehensive high-frequency state and local sales tax data, we show that shopping behavior 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, consumers adjust in many dimensions. They stock up on storable goods before taxes rise and increase online and cross-border shopping in both the short and long run. The difference between short- and long-run spending responses has important implications for the efficacy of using sales taxes for countercyclical policy and for the design of an optimal tax framework. 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 behavior is optimal in the presence of shopping trip fixed costs. The model successfully matches estimated short-run and long-run tax elasticities. We provide additional evidence in favor of this new shopping complementarity mechanism.
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| OP 2137/2021/2 American Economic Journal : Macroeconomics | OP 2137/2021/3 American Economic Journal : Macroeconomics | OP 2137/2021/3-1 Higher taxes at the top | OP 2137/2021/3-2 Shopping for lower sales tax rates | OP 2137/2021/4 American Economic Journal : Macroeconomics | OP 2137/2021/4-1 The young, the old, and the Government | OP 2137/2022/1 American Economic Journal : Macroeconomics |
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Using comprehensive high-frequency state and local sales tax data, we show that shopping behavior 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, consumers adjust in many dimensions. They stock up on storable goods before taxes rise and increase online and cross-border shopping in both the short and long run. The difference between short- and long-run spending responses has important implications for the efficacy of using sales taxes for countercyclical policy and for the design of an optimal tax framework. 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 behavior is optimal in the presence of shopping trip fixed costs. The model successfully matches estimated short-run and long-run tax elasticities. We provide additional evidence in favor of this new shopping complementarity mechanism.
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