The Incidence of Grocery Taxes in U.S. Food and Factor Markets

Abstract

We study the incidence of county-level grocery sales taxes across the United States from 2010-2019. We find substantial grocery tax over-shifting to consumers. On average, a grocery tax that generates $1 in government revenue leads to a $1.25 rise in tax-inclusive consumer food prices. This tax over-shifting is even higher for lower-income households and shoppers at discount and dollar stores. The grocery tax incidence varies significantly among foods, with over-shifting highest for perishable staples. The windfall revenue arising from grocery tax over-shifting does not translate into increased earnings for food retail workers nor higher prices received by farmers.

Keywords: Food Sales Taxes, Tax Incidence, Retail Food Prices, Demand Analysis JEL codes: H22, L81, Q11, D12