2. The sales tax rate applied to all purchases within a state was 0.04 (4 percent) throughout 2006 but increased to 0.05 (5 percent) during all of 2007. The state government collected all taxes due, but its tax revenues were equal to $40 million each year. What happened to the sales tax base between 2006 and 2007? What could account for this result?

higher tax, no increased revenue means the tax base went down.

Population decrease? Less shopping? Embezzlement?

To find out what happened to the sales tax base between 2006 and 2007, we first need to understand what the sales tax base is. The sales tax base refers to the total value of taxable goods and services that are subject to the sales tax.

In this scenario, we know that the sales tax rate was 4 percent in 2006 and increased to 5 percent in 2007. However, despite the change in the tax rate, the state government collected the same amount of tax revenue, $40 million, each year. This suggests that the sales tax base remained the same between 2006 and 2007.

Now let's consider what could account for this result. There are a few possibilities:

1. Constant spending: If people in the state continued to spend the same amount of money on taxable goods and services in both years, then the sales tax base would remain unchanged. This could be the case if there was no significant change in consumer behavior or economic conditions.

2. Elastic demand: If the sales tax rate increase caused a decrease in consumer spending on taxable goods and services, it could have been offset by an increase in the price of those goods and services. This would result in a smaller sales tax base but still generate the same amount of tax revenue.

3. Inelastic demand: If the sales tax rate increase did not significantly impact consumer spending, it suggests that the demand for taxable goods and services is relatively inelastic. In this case, people continue to purchase the same amount of goods and services even with a higher tax rate, resulting in a stable sales tax base.

To determine which of these factors contributed to the unchanged sales tax base, more detailed information and analysis would be needed.