Friday, May 08, 2009

An Exercise in Marginal Cost

An Exercise in Marginal Cost

OK, this is California, but given the way municipalities in Arizona compete with each other for retail sales tax revenue, one wonders how long it will be before this crosses the border.

Well, the small town of Tracy, CA is that place. The municipality is giving away 800 $500 gift certificates to any one of the city's car dealerships...

...the city is spending $800,000 in public money to fund (including advertising) the program...

Sales taxes from the sale of cars and trucks also make up 30% of the city's $45 million city fund...

There isn't any data on how many cars are sold each year in Tracy, but $500 is 2.5% of a $20,000 sales price. If the city sales tax rate plus what they get rebated back from the state is more than 2.5% it looks like they make money on this deal (before overhead.)

The overhead does seem a tad steep. Does it really cost $500 to give away each $500 gift certificate?

HT Instapundit.

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