Shopping for Lower Sales Tax Rates

Using comprehensive high-frequency state and local sales tax data, we show that shopping behavior responds strongly to changes in rates. Even though taxes are not observed posted prices have a wide range of rates exemptions, consumers adjust many dimensions. They stock up on storable goods before rise increase online cross-border both the short long run. The difference between short- long-run spending responses has important implications for efficacy using countercyclical policy design an optimal framework. Interestingly, households similarly taxable tax-exempt goods. We embed inventory problem into continuous-time consumption-savings model demonstrate this is presence trip fixed costs. successfully matches estimated short-run elasticities. provide additional evidence favor new complementarity mechanism. (JEL E21, E32, G51, H21, H25, H71)