Determinants of Sales Tax Revenue: An Econometric Study

Studies on tax revenue identify state income as the major determinant of sales tax revenue. However, state income is a proxy to the tax base and is purely exogenous from the point of view of tax revenue changes. This leaves with the alternative to identify endogenous variable that could be used as suitable policy instrument to affect changes in tax yield. The study finds tax rate as the suitable alternative to state income that affects sales tax revenue collection as and when desired by the policy makers.