Impact of Market Concentration on Effective Sales Tax Rate: Evidence from Insurance Industry
23 Pages Posted: 23 Jun 2018
Date Written: June 8, 2018
This paper examines the impact of market concentration in the insurance industry on the effective insurance premium sales tax. I use unexpected disasters normalized by the population of the state as a source of exogenous variation in the market concentration. Unexpected disasters lead to the exit of insurance firms from the state leading to higher market concentration. I find empirical evidence that a ten percent increase in market concentration leads to five percent reduction in the effective insurance premium tax rate. This implies a reduction of $84 mn in tax revenues. I also show a correlation between market concentration and campaign contributions. This suggests that higher market concentration increases the likelihood of firms coming together as an interest group and lobby for a favorable (tax) policy.
Keywords: Market Concentration, Lobbying, Sales Tax
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