TY - JOUR
T1 - Shopping for Lower Sales Tax Rates
AU - Baker, Scott R.
AU - Johnson, Stephanie
AU - Kueng, Lorenz
N1 - Funding Information:
* Baker: Department of Finance, Northwestern University (email: [email protected]); Johnson: Department of Finance, Rice University (email: [email protected]); Kueng: Università della Svizzera italiana (USI Lugano), Swiss Finance Institute (SFI), Northwestern University, NBER, and CPER (email: [email protected]). Simon Gilchrist was coeditor for this article. We thank two anonymous referees for detailed feedback and our discussants Gabe Chodorow-Reich, Jonathan Parker, and Inessa Liskovich, and participants at seminars at the NBER Summer Institute, Arizona State University, University of California, Berkeley, University of Bern, Chicago Fed, Columbia University, Goethe University Frankfurt, Minneapolis Fed, University of Minnesota, Ludwig Maximilian University of Munich, Northwestern University, NYU, Ca’ Foscari University of Venice, University of Wisconsin-Madison, and Yale University for their comments. This research received financial support from the Alfred P. Sloan Foundation through the NBER Household Finance small grant program. Mawell Rong provided excellent research assistance. Researchers’ own analyses calculated (or derived) based in part on data from The Nielsen Company (US), LLC and marketing databases provided through the Nielsen Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the Nielsen data are those of the researchers and do not reflect the views of Nielsen. Nielsen is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein.
Publisher Copyright:
© 2021
PY - 2021/7
Y1 - 2021/7
N2 - 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 shortand 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.
AB - 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 shortand 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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U2 - 10.1257/mac.20190026
DO - 10.1257/mac.20190026
M3 - Article
AN - SCOPUS:85117839190
SN - 1945-7707
VL - 13
SP - 209
EP - 250
JO - American Economic Journal: Macroeconomics
JF - American Economic Journal: Macroeconomics
IS - 3
ER -