Sales Tax Efforts of States: Some Empirical Findings and Policy Issues

This paper raises some methodological issues involved in the measurement of sales tax potential and efforts of States. The existing studies on sales tax efforts of States have used State Domestic Product or its various components as the potential base of sales tax. The methodological limitations of this approach are outlined and the suitability of total consumer expenditure as an- alternative base are examined. Sales tax potential and efforts of 14 major States are estimated using State Domestic Product approach and consumer expenditure approach for five points in time. Statistical tests are carried out to bring out the superiority of the latter approach.