Lost in America: Evidence on Local Sales Taxes from National Panel Data
David R. Agrawal
University of Georgia - Department of Economics
May 1, 2014
Local option sales taxes (LOST) are allowed in more than thirty states. This paper studies a never previously analyzed high-frequency panel data set of local option sales taxes with observations from every state in the nation at the monthly frequency between 2003 and 2012. I calculate state-by-month population weighted averages of the local sales tax rates and standard deviations under various cross-border shopping assumptions. Special attention is paid to distinguish components of the federalist hierarchy and whether the taxes are levied at the county, municipal, or special district level. I then document ten stylized facts concerning the time series patterns and dynamics of local tax levels, the dispersion of tax rates within states, and the frequency of changes in LOST across states.
The paper then applies the local tax aggregates to document spatial tax patterns across states. A “tax system” approach to tax competition considers how states compete on a variety of margins that are often ignored by the standard focus on state tax rates. When states design a sales tax system, they do so by jointly setting their state tax rates and establishing various levels of flexibility to LOST; the degree of flexibility granted to municipalities by state statutes influences how high the average total tax burden is within a state. Using spatial panel data techniques and the state-by-month population weighted averages, I find a significant association between one state's tax system and its neighboring states' tax system.
Number of Pages in PDF File: 68
Keywords: Commodity Taxation, Local Public Finance, Fiscal Federalism, Spatial Tax Competition
JEL Classification: H20, H71, H77, R50, L81working papers series
Date posted: November 10, 2013 ; Last revised: May 14, 2014
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