Impact of Market Concentration on Effective Sales Tax Rate: Evidence from Insurance Industry

23 Pages Posted: 23 Jun 2018

Date Written: June 8, 2018

Abstract

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

Suggested Citation

Sharma, Ghanshyam, Impact of Market Concentration on Effective Sales Tax Rate: Evidence from Insurance Industry (June 8, 2018). Available at SSRN: https://ssrn.com/abstract=3189516 or http://dx.doi.org/10.2139/ssrn.3189516

Ghanshyam Sharma (Contact Author)

Seton Hall University ( email )

United States
8646504947 (Phone)

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