The Effect of Diaper Taxes on Household Consumption and the Distribution of Tax Expenditures

• In Event: Sales Taxes as Social Policy: Incidence, consumer responses and benefits distribution of wax waivers and inclusions

Abstract

Exempting diapers from general sales taxes has been widely adopted in recent years. We present the first nationwide evidence of the effects of these tax exemptions using the NielsenIQ Homescan Panel of consumers’ household purchases and Avalara AvaTax API sales tax rate data. We compare the changes in diaper purchases over time in states that exempted diapers from their sales taxes to changes over the same period in comparison states across the U.S. We find that waiving diapers from the sales tax increases both, the likelihood of purchasing diapers and the total number of diapers purchased. Preliminary results suggest an increase of about five percentage points or 10% over a baseline of 52%, on the probability of purchasing a diaper in each quarter after the waiver, and the quantity of diapers has also increased in average with about 10 additional diapers per quarter over a baseline of 120 diapers per quarter prior to the intervention. These effects are substantially larger for low-income households, with increases of 15 percentage points or about 30% over the baseline probability of purchase, and about additional 40 additional diapers per quarter, or 35% over a baseline of 110 diapers per quarter in average previous to the waivers. We use these estimates to evaluate the distribution of tax expenditures following the tax, and we find that groups less likely to experience diaper-related need benefit disproportionately from the waivers.

Authors

• Lindsey Rose Bullinger, Georgia Institute of Technology
  Non-Presenting Co-Author

• FELIPE ANDRES LOZANO-ROJAS, University of Georgia
  Presenting Author