It can be applied to changes in the state sales tax, state unemployment insurance and workers compensation tax rates, property tax rates, and the state franchise tax. It shows how increases in these tax rates exert measurable, negative effects on the state economy. The coefficients are obtained from the data by estimating regression equations that link jobs and the other economic indicators to factors, notably tax rates, that influence those indicators. Economists sometimes estimate the coefficients that link policy changes to economic changes without specifying the underlying theory on which those coefficients are based. If government raises taxes on the purchase of these goods and services, households will buy less of them.
Households also supply labor to firms.
If labor services are taxed more heavily, then households will supply less of them. Firms are assumed to maximize profit, which they do by combining labor and capital in order to produce the goods and services that households demand. In this process, firms supply goods and services. If they have to pay a higher sales tax, then they will charge more for their goods, sell less as a result, and have to reduce production. Firms also pay wages and salaries to their workers.