The Political Economy of Sales Taxes and Sales Tax Exemptions

45 Pages Posted: 4 Nov 2014

See all articles by Andreea Militaru

Andreea Militaru

Independent

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; George Mason University - Mercatus Center; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 22, 2014

Abstract

We analyze the choice politicians face when seeking votes from groups that lobby for sales tax rate decreases or from groups that lobby for certain tax exemptions, given the constraint that politician wants to raise a certain amount of revenue. Using the application of sales taxes and sales tax exemptions we develop a model predicting a positive relationship between the number of sales tax exemptions and the sales tax rate. We find support for the hypothesis that there is an equilibrium relationship between tax rates and exemptions. We find that a one-unit increase in the number of exemptions is associated with an increase between 0.10 and 0.25 percent increase in the sales tax rate.

JEL Classification: D720

Suggested Citation

Militaru, Andreea and Stratmann, Thomas, The Political Economy of Sales Taxes and Sales Tax Exemptions (October 22, 2014). CESifo Working Paper Series No. 5016, Available at SSRN: https://ssrn.com/abstract=2518341

Andreea Militaru

Independent

Thomas Stratmann (Contact Author)

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://www.mercatus.org/scholars/thomas-stratmann

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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