A study published on March 7 in Contemporary Accounting Research finds that states more reliant on sales tax revenue tended to have shorter stay-at-home orders during the early stages of the COVID-19 pandemic. The research suggests that budgetary pressures related to tax policy may have influenced public health decisions across the United States.
The findings are significant because they highlight how financial considerations, such as a state’s dependence on consumption taxes, could affect decisions intended to protect public health. This relationship is particularly relevant for policymakers considering how fiscal structures might impact crisis management.
Nathan Goldman, co-author of the study and associate professor of accounting at North Carolina State University’s Poole College of Management, said, “For this study, we looked at a host of state data – and it is important to note that observational studies cannot prove causation. 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.”
The researchers analyzed data from all 50 states and the District of Columbia, focusing on each state’s tax revenue sources and three common health-related policies: stay-at-home orders, restaurant closures, and bar closures. They also controlled for factors such as political party affiliation of governors, historical voting patterns, population characteristics, unemployment rates, poverty levels, minimum wage laws, per capita tax collections, and geographic region.
Goldman explained that these controls were used because they can indicate conservative political orientation which might also influence policy decisions. “We wanted to see if there was a possible relationship between tax revenue and public-health policy,” he said. The study found that states without a sales tax had longer stay-at-home orders than those with one; moreover, higher reliance on sales taxes correlated with shorter durations for these restrictions.
Similar patterns were observed in analyses conducted at both national (European Union) and county levels (Virginia and Georgia). Goldman said: “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.”
The paper was co-authored by Stephen Lusch from the University of Kentucky’s Gatton College of Business and Economics and Luke Watson from Villanova University.
