Lost Stability? Consumption Taxes and the Cyclical Volatility of State and Local Revenues

22 Pages Posted: 16 Nov 2007

See all articles by Yilin Hou

Yilin Hou

Maxwell School, Syracuse University

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy

Date Written: November 1, 2007

Abstract

Some state and local governments continue to consider moving from income and property taxes, respectively, towards consumption taxes. Since the mid-1970s Georgia's local governments have had the option to substitute sales taxes for a portion of property tax receipts; the adoption of local option sales taxes (LOST) has since been widespread. This paper examines the effects of LOST on the long- and short-run volatility of local own-source revenues: Is adopting the local option sales taxes increasing or decreasing the volatility of own-source revenues? Using a large panel dataset of county governments in the state of Georgia across two most recent economic cycles, we find that LOST adds to the variability of own-source revenues, confirming that consumption taxes are less stable than property taxes they displace. This finding contributes to literature and bears direct implications to current policy debates.

Keywords: state and local, sales taxes, revenue, volatility

JEL Classification: H71, H72

Suggested Citation

Hou, Yilin and Seligman, Jason S., Lost Stability? Consumption Taxes and the Cyclical Volatility of State and Local Revenues (November 1, 2007). Available at SSRN: https://ssrn.com/abstract=1029697 or http://dx.doi.org/10.2139/ssrn.1029697

Yilin Hou (Contact Author)

Maxwell School, Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-3114 (Phone)

HOME PAGE: http://www.maxwell.syr.edu/pa/cpr/Hou,_Yilin/

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States
(202) 622-1683 (Phone)

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