The Effect of State and Local Sales Taxes on Employment at State Borders

41 Pages Posted: 16 Oct 2013

See all articles by Shawn M. Rohlin

Shawn M. Rohlin

Rochester Institute of Technology (RIT) - Department of Economics

Jeffrey P. Thompson

New England Public Policy Institute, Federal Reserve Bank of Boston; Federal Reserve Board of Governors

Date Written: June 26, 2013

Abstract

This paper estimates the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed data set of local tax rates. 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 effects also represent an upper-bound, largely driven by employment shifting across the state border. We also find that employment in food and beverage stores is negatively affected when cross-border neighbors adopt low sales tax rates on food.

Keywords: Sales tax, local taxes, border models, cross-border shopping

JEL Classification: H2, H7, R5

Suggested Citation

Rohlin, Shawn M. and Thompson, Jeffrey P., The Effect of State and Local Sales Taxes on Employment at State Borders (June 26, 2013). FEDS Working Paper No. 2013-49, Available at SSRN: https://ssrn.com/abstract=2340660 or http://dx.doi.org/10.2139/ssrn.2340660

Shawn M. Rohlin

Rochester Institute of Technology (RIT) - Department of Economics ( email )

92 Lomb Memorial Drive
Rochester, NY 14623-5604
United States

Jeffrey P. Thompson (Contact Author)

New England Public Policy Institute, Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Federal Reserve Board of Governors ( email )

Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/jeffrey-p-thompson.htm

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