Do grocery food taxes incentivize participation in SNAP?

Abstract

The Supplemental Nutrition Assistance Program (SNAP) is the largest federal food assistance program in the United States and is designed to reduce food insecurity especially for low income working families, disabled people, and senior citizens. Although economists have extensively studied the factors influencing SNAP participation by eligible households as well as SNAP efficacy in reducing food insecurity, there has been no research on the potential link between the grocery food sales tax and SNAP participation rates, which is a less visible benefit of SNAP participation because participants are not taxed on their food purchases. The purpose of this research is to examine the impact of grocery food tax differences between state border counties on differences in SNAP participation. We collect food sales tax data from 2010 to 2017 including all 1184 counties on state borders in the United States, and almost one-half of those border counties (42.6% for 2017) had a sales tax on grocery food. Our results suggest that a 1% increase in the grocery tax difference between cross-border neighbors is associated with a 0.12% increase in the difference in county-level SNAP participation. That is, counties with higher grocery taxes than their neighboring counties have higher SNAP participation rates, which is likely due to the tax shielding feature of SNAP. This result has implications for states/counties that rely on the grocery tax for funding government programs.