Did State Tax Policy Influence State-Level COVID-19 Restrictions?

During the COVID-19 pandemic, states grappled with the question of whether and to what extent to impose restrictions to slow the spread of COVID-19. We investigate whether state reliance on sales tax revenue, relative to other tax revenue sources, is associated with shorter durations of COVID-19 pandemic state mobility restrictions. We find that sales tax reliance is associated with states imposing shorter durations of stay-home orders, restaurant closures, bar closures, and movie theater closures. Meanwhile, falsification tests in non-taxable settings of elective medical procedures and prison visits yield no association with sales tax reliance. We control for state political preferences in our main tests and partition on state political preferences in a subsequent analysis, detecting evidence of a negative association between sales tax reliance and duration of stay-home orders and restaurant closures in both Democrat- and Republican-leaning states. Finally, we find evidence that European nations’ reliance on consumption taxes was negatively associated with the duration of national stay-home orders. Our study suggests that perceptions of sales tax revenue shortfalls may have influenced states’ COVID-19 responses. These findings provide far-reaching evidence of the role of financial policies in society and, in particular, the “real effects” of state tax policy on state public health policy