Factors Affecting Tipping Behavior: A Regression Analysis of State-Level Determinants

Abstract

Tipping originated hundreds of years ago before it was imported to the United States in the mid 1800s. Today, restaurants across the country have switched to integrated point-of-sale technology systems such as Toast and Square. This study investigates the determinants of average tip percentages left on the Toast platform across all 50 states and six quarter periods spanning 2022 and 2023 using a fixed effects regression model. The goal of this study is to test whether independent variables measuring tip credit, cost-of-living, unemployment rate, state and local sales tax, and personal income per capita affect average tip percentages at the U.S. state level. The significant results propose higher levels of cost-of-living are associated with decreases in average tip percentage, suggesting that higher living costs may reduce consumers' willingness to tip generously. In contrast, increases in unemployment rate and reductions in personal income per capita, on average per state, are associated with increased average tip percentages. These findings align with theories of altruism and generosity that suggest during times of economic recession, consumers tip in larger percentages as motivated by a desire to help servers.