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Do State Sales Taxes Crowd Out Local Option Sales Taxes?

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  • Burge Gregory S.

    (Department of Economics, University of Oklahoma, 73019, Norman, OK, USA)

  • Rogers Cynthia L.

    (Department of Economics, University of Oklahoma, 73019, Norman, OK, USA)

Abstract

Currently, sales taxes are imposed at both the state and local levels in 37 US states. In these environments, vertical tax competition occurs as governments share a common sales tax base, and local jurisdictions have autonomy over sales tax rates. As cash-strapped states look to sales taxes for additional revenues, local governments may worry about potentially adverse revenue impacts, as consumers react to combined tax rate increases. This study examines state-municipal and county-municipal fiscal spillovers using an empirical approach that accounts for endogenous tax policy leadership and voter tax fatigue. Employing comprehensive longitudinal data from Oklahoma, we find that state tax hikes significantly crowd out future rate increases for the large group of jurisdictions that are designated as followers. Leader jurisdictions are not found to display crowd-out tendencies, a result that is consistent with recent work suggesting that leaders may be less influenced by vertical fiscal externalities than other jurisdictions.

Suggested Citation

  • 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.
    • Handle: RePEc:bpj:bejeap:v:18:y:2018:i:3:p:9:n:8
    DOI: 10.1515/bejeap-2018-0003
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    Cited by:

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    2. 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.
    3. Ferraresi Massimiliano, 2021. "Political Budget Cycle, Tax Collection, and Yardstick Competition," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 21(3), pages 1149-1161, July.

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    More about this item

    Keywords

    local sales taxes; vertical and horizontal policy spillovers; crowd-out effects; voter tax fatigue;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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