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Strategic Fiscal Interdependence: County and Municipal Adoptions of Local Option Sales Taxes

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  • Burge, Gregory S.
  • Piper, Brian

Abstract

This study contributes to the tax competition literature by investigating the determinants of local option sales tax (LOST) adoptions using a model that simultaneously accounts for the presence of horizontal and vertical fiscal interactions. We use discrete time Cox Proportional Hazard regressions to study adoption patterns for county and municipal LOSTs in an environment where municipalities were authorized to implement LOSTs nearly two decades before counties. Controlling for factors measuring fiscal stress and the jurisdiction’s ability to export its taxes, we demonstrate that both vertical and horizontal fiscal spillovers play an important role in characterizing the strategic interdependence of local governments when they tax a common retail sales base.

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  • Burge, Gregory S. & Piper, Brian, 2012. "Strategic Fiscal Interdependence: County and Municipal Adoptions of Local Option Sales Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(2), pages 387-415, June.
    • Handle: RePEc:ntj:journl:v:65:y:2012:i:2:p:387-415
    DOI: 10.17310/ntj.2012.2.05
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    Cited by:

    1. Agrawal, David R., 2014. "LOST in America: Evidence on local sales taxes from national panel data," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 147-163.
    2. Agrawal, David R. & Shybalkina, Iuliia, 2023. "Online shopping can redistribute local tax revenue from urban to rural America," Journal of Public Economics, Elsevier, vol. 219(C).
    3. Whitney B. Afonso, 2017. "State LST Laws: A Comprehensive Analysis of the Laws Governing Local Sales Taxes," Public Budgeting & Finance, Wiley Blackwell, vol. 37(4), pages 25-46, December.
    4. Trang Hoang, 2022. "Fiscal competition and state pension reforms," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 41-70, September.
    5. Eric J. Brunner & David J. Schwegman, 2022. "Windfall revenues from windfarms: How do county governments respond to increases in the local tax base induced by wind energy installations?," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 93-113, September.
    6. Melissa Gentry & Nadia Greenhalgh-Stanley & Shawn M. Rohlin & Jeffrey P. Thompson, 2020. "Dynamic Sales Tax Competition: Evidence from Panel Data at the Border," Working Papers 20-5, Federal Reserve Bank of Boston.
    7. David R. Agrawal, 2021. "The Internet as a Tax Haven?," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 1-35, November.
    8. David R. Agrawal, 2015. "The Tax Gradient: Spatial Aspects of Fiscal Competition," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 1-29, May.
    9. Can Chen & Whitney B. Afonso, 2021. "The Adoption of Local Option Fuel Taxes: Evidence From Florida Counties," Public Budgeting & Finance, Wiley Blackwell, vol. 41(1), pages 51-75, March.
    10. Agrawal, David R., 2016. "Local fiscal competition: An application to sales taxation with multiple federations," Journal of Urban Economics, Elsevier, vol. 91(C), pages 122-138.
    11. David R. Agrawal & William F. Fox, 2021. "Taxing Goods and Services in a Digital Era," National Tax Journal, University of Chicago Press, vol. 74(1), pages 257-301.
    12. Lang (Kate) Yang & Bradley T. Heim, 2017. "Responsiveness of Income to Local Income Taxes: Evidence from Indiana," National Tax Journal, National Tax Association;National Tax Journal, vol. 70(2), pages 367-392, June.
    13. Burge Gregory S. & Rogers Cynthia L., 2018. "Do State Sales Taxes Crowd Out Local Option Sales Taxes?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(3), pages 1-9, July.
    14. Emefa Sewordor & David L. Sjoquist, 2016. "Lights, Camera, Action: The Adoption of State Film Tax Credits," Public Budgeting & Finance, Wiley Blackwell, vol. 36(2), pages 5-25, June.
    15. Spencer T. Brien & Wenli Yan, 2020. "Are Overlapping Local Governments Competing With Each Other When Issuing Debt?," Public Budgeting & Finance, Wiley Blackwell, vol. 40(2), pages 75-92, June.
    16. Hawley, Zackary & Rork, Jonathan C., 2015. "Competition and property tax limit overrides: Revisiting Massachusetts' Proposition 2½," Regional Science and Urban Economics, Elsevier, vol. 52(C), pages 93-107.
    17. Bo Zhao, 2021. "Opting in with the Joneses: What Affects the Timing of Municipal Adoption of a Local-option Meals Tax?," Working Papers 21-14, Federal Reserve Bank of Boston.
    18. John Deskins & Brian Hill, 2023. "What Factors Entice States to Manipulate Corporate Income Tax Apportionment Formulas?," Public Finance Review, , vol. 51(5), pages 669-687, September.
    19. Whitney Afonso, 2016. "The Equity of Local Sales Tax Distributions in Urban, Suburban, Rural, and Tourism Rich Counties in North Carolina," Public Finance Review, , vol. 44(6), pages 691-721, November.
    20. Leah Brooks, 2023. "Comment on "Minimum Tax Rates and Tax Competition: Evidence from Property Tax Limits in Finland"," NBER Chapters, in: Policy Responses to Tax Competition, National Bureau of Economic Research, Inc.

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