The Distributional Impacts of Taxes on Health Products: Evidence from Diaper Sales Tax Exemptions

30 Pages Posted: 24 Sep 2020

See all articles by Chelsea Swete

Chelsea Swete

University of California, San Diego (UCSD) - UC San Diego

Kye Lippold

Office of Tax Analysis, US Treasury

Date Written: June 10, 2020

Abstract

Sales taxes that are uniform across products are traditionally seen as more efficient than good-specific taxes, but broad-based taxes can be regressive for low income households. We examine taxation of diapers, an inelastic health product, and find substantial income variation in responsiveness to taxes using retail scanner data. Exploiting changes to sales tax exemptions for diapers in New York State and Connecticut, we find that sales of diapers rise by 5.4% in low income areas when taxes are removed, accompanied by a 6.2% fall in spending on children's pain medications. These results imply that sales tax exemptions for diapers can have positive spillover effects on health and well-being.

Keywords: sales tax, children

JEL Classification: H71, I1

Suggested Citation

Swete, Chelsea and Lippold, Kye, The Distributional Impacts of Taxes on Health Products: Evidence from Diaper Sales Tax Exemptions (June 10, 2020). Available at SSRN: https://ssrn.com/abstract=3671021 or http://dx.doi.org/10.2139/ssrn.3671021

Chelsea Swete (Contact Author)

University of California, San Diego (UCSD) - UC San Diego ( email )

9500 Gilman Dr., 0519
La Jolla, CA 92093-0519
United States

Kye Lippold

Office of Tax Analysis, US Treasury ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

HOME PAGE: http://sites.google.com/view/kyelippold/

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