US states more dependent on sales tax revenue tended to implement shorter stay-at-home orders during the early stages of the COVID-19 pandemic.
RT’s Three Key Takeaways:
- Sales Tax Reliance Linked to Shorter Lockdowns: A study in Contemporary Accounting Research found that U.S. states more dependent on sales tax revenue tended to implement shorter stay-at-home orders during the early stages of the COVID-19 pandemic.
- Economic Pressures May Shape Health Policy: Researchers from North Carolina State University suggest that declines in consumer spending during lockdowns may have created budget pressures, influencing decisions to reopen economies sooner.
- Consistent Pattern Across Regions: The same correlation was observed in analyses of European Union countries and at county levels within states like Virginia and Georgia, highlighting how fiscal structure may play a role in public-health decision-making, though the study does not prove causation.
The more a state’s budget relied on sales tax revenue, the more likely it was to shorten stay-at-home orders during the early stages of the COVID pandemic, according to data published in Contemporary Accounting Research.
Researchers say the findings suggest that state public-health decisions may have been influenced by unexpected budgetary constraints imposed by public-health restrictions.
“For this study, we looked at a host of state data – and it is important to note that observational studies cannot prove causation,” says Nathan Goldman, co-author of the study and an associate professor of accounting in North Carolina State University’s Poole College of Management. “However, we did find a very strong correlation between a state’s sources of revenue and its public-health policies during the early days of the pandemic.”
There is tremendous variability between states in the extent to which they rely on consumption taxes versus income taxes. For example, Washington State has no income tax but has a state sales tax of 6.5%. Oregon, on the other hand, has no sales tax, but has a progressive income tax system that tops out at 9.9%.
“The pandemic created a situation where people were staying home and many businesses were closed,” Goldman says. “We wanted to see how tax policy, coupled with the pandemic, may have influenced other policy decisions.”
For this study, the researchers evaluated data from all 50 states and the District of Columbia. Specifically, the researchers drew on each state’s tax revenue data, as well as three state-level health-related policies that were widespread during the early days of the COVID-19 pandemic: stay-at-home orders, restaurant closures and bar closures.
The researchers also controlled for the political party of the state’s governor, historical presidential election voting patterns of the state, population, population density, unemployment, poverty rates, minimum wage, tax collections per capita, and geographic region.
“We wanted to account for those variables because they are indicators of conservative political orientation, which could also inform policy decisions on things like stay-at-home orders,” Goldman says. “We wanted to see if there was a possible relationship between tax revenue and public-health policy, so we used statistical tools to account for these political proxies.”
The researchers found that states without a sales tax were associated with longer stay-at-home orders than states that did have a sales tax. Further, the researchers found that the higher the proportion of a state’s total tax revenue came from sales tax, the shorter the state’s stay-at-home order duration.
“We conducted similar analyses at the national level for countries in the European Union and found the same correlation,” says Goldman. “We also looked at county-by-county data for the states of Virginia and Georgia – and, again, the correlation was there.
“Studies like this one underscore the complex set of issues that inform public-health decisions and could shed light on how tax policies can constrain or influence policy issues seemingly unrelated to state revenue.”
