when a government wants to encourage consumer spending or business investment it may offer a tax holiday a temporary period during which certain taxes are reduced or lifted altogether 
tax holidays may also seek to offset the effect of market based increases in prices this was the case with gas tax holidays instituted by some states and advocated by president joseph biden in 2022 in response to sharply higher prices at the pump 1some tax holidays have become an annual tradition for example some state and local governments in the u s offer a sales tax holiday the weekend before school resumes in the fall to reduce parents outlays for school supplies 2the goal is to increase store traffic which can boost overall spending states declaring a tax holiday may also hope to draw consumers from other nearby states national or local governments may also offer a tax holiday for businesses to foster growth developing countries sometimes use tax holidays to attract foreign investment tax holidays focused on business investment may be defined based on the location of the investment as with the opportunity zones created by the tax cuts and jobs act of 2017 these defer capital gains taxes on funds reinvested in qualifying projects within designated low income areas 3alternatively business investment tax holidays may target particular companies or industries for example the state of wisconsin initially offered 2 85 billion in tax credits to taiwan electronics manufacturer foxconn however it scaled that back to 80 million when foxconn failed to follow through on plans to invest 10 billion in a new plant in the state 4some researchers found that sales tax holidays led households to increase purchases of clothing by more than 49 and shoes by more than 45 5 others have concluded that the regressive nature of sales taxes on lower income families throughout the year overrides the benefits they may obtain from a few annual holidays 6