Abstract: Utilizing the Consumer Expenditure Survey and state-level variation in
taxes, this study finds that prices for most models of new cars shift
by more than the amount of a sales tax. The evidence of an
overshifting of prices offers support for the recent models of tax
incidence in imperfectly competitive markets. The results also
suggest that changes in the after-tax interest rate have offsetting
effects on new car prices; a one percentage point increase in the
after-tax real interest rate will prompt, on average, a mark-down of
$106.
Keywords: Sales taxes, car prices, interest rates
Full paper (305 KB PDF)
| Full paper (297 KB Postscript)
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Last update: September 17, 1997
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