Local Sales Tax Earmarking and Transportation Outlay
31 Pages Posted: 2 Apr 2011
Date Written: March 20, 2011
This paper explores the fungibility between earmarked local option sales taxes and general revenue. We predict that as the adjustment costs to the budget grow, there will be less compensation from general revenue. We use national county level data from 1983 to 2004 to examine the effects of local option sales taxes earmarked for transportation (LOST-T). We find that counties with LOST-T spend more on transportation: a one percentage point increase in the LOST-T rate increases per capita transportation outlay by $40. This is an important result, shedding light on the impact of earmarked taxes which has been inconclusive in the literature.
Keywords: tax earmarks, local option sales taxes, transportation spending
JEL Classification: H71, H72, H76, R40
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