ON THE MEASUREMENT OF SALES TAX INCIDENCE IN THE PRESENCE OF TRANSFERS

This paper addresses a long-standing debate over the proper treatment of transfer payments in the measurement of sales tar incidence. It sho ws that the traditional approach and Browning's alternative yield inco rrect estimates of sales tax incidence. It also shows that sales tax i ncidence is affected not by the mere presence of transfers but by the extent to which they are indexed. The paper develops a general formula for measuring sales tax incidence which treats the amount of indexing as a negative tax and shows that the traditional approach and Brownin g's case are polar cases of the general formula.