Did Distortionary Sales Taxation Contribute to the Growth of the Service Sector?

Posted: 20 Apr 2000

See all articles by David Merriman

David Merriman

University of Illinois at Chicago - Institute of Government and Public Affairs; Department of Public Administration

Mark Skidmore

Michigan State University - Department of Agricultural Economics

Abstract

Since the 1950s, the sales tax has become much more widely used as a source of state government revenue and the average sales tax rate has been greatly increased. During this period, the service sector has grown rapidly relative to other sectors of the economy. We hypothesize that increased sales taxation has played a role in the growth of the service sector, because states typically exempt sales of services from the sales tax unless explicitly enumerated, while final purchases of goods are taxed unless explicitly exempted. Our empirical results suggest that increased sales taxation is responsible for as much as one-third of the decline in the retail sector and one-eighth of the increase in the service sector during the 1982-92 period.

JEL Classification: H25

Suggested Citation

Merriman, David and Skidmore, Mark L., Did Distortionary Sales Taxation Contribute to the Growth of the Service Sector?. Available at SSRN: https://ssrn.com/abstract=222548

David Merriman

University of Illinois at Chicago - Institute of Government and Public Affairs

Chicago, IL 60607
United States

Department of Public Administration ( email )

400 S Peoria St.
2122 AEH (MC278)
Chicago, IL 60607
United States

Mark L. Skidmore (Contact Author)

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States

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