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Local sales taxes, employment, and tax competition

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  • Rohlin, Shawn M.
  • Thompson, Jeffrey P.

Abstract

Most analysis of the economic impacts of sales taxes does not include local taxes, despite the fact that they account for one-fifth of all sales tax collections and vary widely across states. This paper addresses that omission, estimating the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed data set of local county tax rates. The findings indicate that sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state. The employment effects are also likely to be relatively short-lived, as they occur in the period before tax competition occurs and competitive jurisdictions are able to strategically respond and minimize cross-border tax differentials. Comparing estimates of sales tax effects with and without local county sales taxes show that omitting county taxes does not lead to meaningfully different estimates.

Suggested Citation

  • Rohlin, Shawn M. & Thompson, Jeffrey P., 2018. "Local sales taxes, employment, and tax competition," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 373-383.
    • Handle: RePEc:eee:regeco:v:70:y:2018:i:c:p:373-383
    DOI: 10.1016/j.regsciurbeco.2017.10.012
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    References listed on IDEAS

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    Cited by:

    1. Button, Patrick, 2019. "Do tax incentives affect business location and economic development? Evidence from state film incentives," Regional Science and Urban Economics, Elsevier, vol. 77(C), pages 315-339.
    2. 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.
    3. Wang, Lingxiao & Zheng, Yuqing, 2024. "Why are grocery foods taxed in the United States? Theory and spatial evidence from multilevel government interactions," Regional Science and Urban Economics, Elsevier, vol. 104(C).
    4. Enami, Ali & Reynolds, C. Lockwood & Rohlin, Shawn M., 2023. "The effect of property taxes on businesses: Evidence from a dynamic regression discontinuity approach," Regional Science and Urban Economics, Elsevier, vol. 100(C).
    5. Yulong Chen & Kevin D. Duncan & Liyuan Ma & Peter F. Orazem, 2023. "How relative marginal tax rates affect establishment entry at state borders," Small Business Economics, Springer, vol. 60(3), pages 1081-1103, March.
    6. Agrawal, David R. & Trandel, Gregory A., 2019. "Dynamics of policy adoption with state dependence," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    7. Zhao, Jianqiang J. & Kaiser, Harry M. & Zheng, Yuqing, 2022. "Do grocery food taxes incentivize participation in SNAP?," Regional Science and Urban Economics, Elsevier, vol. 95(C).

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    More about this item

    Keywords

    H2; H7; R5; Inter-state tax competition; Sales tax; Local taxes; Border models; Cross-border shopping;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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