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retail sales tax elasticity for California is 0.8. Which of the following would be accurate A....

retail sales tax elasticity for California is 0.8. Which of the following would be accurate

A. A 10% increase in state GDP will lead to a 8% increase in retail sales tax revenue.

B. California's  sales tax is elastic.

C. California state sales tax is buoyant

D. none of the above

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Answer #1

Retail sales tax elasticity is calculated as follows -

Retail sales tax elasticity = Percentage change in retail sales tax revenue/Percentage change in GDP

The retail sales tax elasticity for California is 0.8

This indicates that a 10% increase in the GDP of California leads to 8% increase in its retail sales tax revenue.

The value of the retail sales tax elasticity for California is less than 1.

This means that California's sales tax is inelastic.

Hence, the correct answer is the option (A).

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