Economic Effects of Eliminating the Sales Tax Exemption for Food: An Applied General Equilibrium Analysis

Abstract

An applied general equilibriun1 model is employed to simulate the incidence and the efficiency impact of eliminating the sales tax exemption for food. The incidence result--eliminating the sales tax exemption for food is regressive because the burden is shifted almost entirely forward to consumers--sup(Xlrts the incidence assumptions typically used in previous studies. The efficiency results--increasing the sales tax rate on food from zero to the current rate yields efficiency gains but increasing the rate further results in an efficiency loss--may be an artifact of the model's utility function. (H22, H71, 058)