Popular Substitution Effects: Excess Burden Estimates for General Sales Taxes
Posted: 13 Feb 2003
In this paper, a partial equilibrium model is used to evaluate the efficiency of some popular sales tax structures, including structures with pyramiding from levies on production inputs. The results generally support expectations - inefficiency increases when retail exemptions are large and the general rate is high - but fall heavily on price-inelastic and exempt goods and actually improve tax efficiency. Second, equal-yield sales tax systems can have different median tax payments and a large majority of households may prefer exemptions and high rates.
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