Price Effects around a Sales Tax Holiday: An Exploratory Study

Tax relief from a sales tax holiday depends on lower final prices for the eligible goods. In this article, prices are compared for ten goods across several retail locations before, during, and after the 2001 Florida sales tax holiday period. The comparison is also extended to the same items in a metropolitan statistical area just outside of Florida. The exploratory data indicate that before‐tax prices are slightly higher in Florida retail establishments during the sales tax holiday, but it is not clear whether these prices reflect less generous markdowns by Florida managers or pricing decisions for much larger regions. Whichever the case, the tax policy forces consumers to speculate on non‐holiday prices and choose items where the final price is, in fact, lower during the holiday.