Consumers’ Behavioral Response to Sales Taxes on Food in Kansas

This study examines the effects of sales taxes on food in Kansas counties from 2012 to 2013. Sales taxes that include sales of food for at-home consumption may be more stable due to their low price elasticity of demand. However, border effects caused by tax rate differentials across jurisdictions ma...

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Bibliographic Details
Published in:	Public finance and management 2017-03, Vol.17 (2), p.92-123
Main Author:	Srithongrung, Arwiphawee
Format:	Article
Language:	eng
Subjects:	Consumer behavior Economic models Elasticity of demand Food Food products Public opinion Sales tax Sales taxes State taxes Studies Tax rates Taxation
Online Access:	Get full text
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Summary:	This study examines the effects of sales taxes on food in Kansas counties from 2012 to 2013. Sales taxes that include sales of food for at-home consumption may be more stable due to their low price elasticity of demand. However, border effects caused by tax rate differentials across jurisdictions may create significant revenue losses for local governments. This study improves the reliability of existing empirical results by calculating an index of the relative tax burden of a county and all surrounding counties. Unlike existing studies where dummy variables are used to indicate whether the adjacent county has lower tax rate, we employ a measure of relative tax burdens as an indicator of sales tax policy differentials. Empirically, we employ a difference estimator on panel data with corrections for heteroscedasticity and autocorrelation. Our results suggest that food sales in Kansas are sensitive to tax rate differentials.
ISSN:	1523-9721 1523-9721