LOST in America: Evidence on Local Sales Taxes from National Panel Data

Abstract

This paper studies comprehensive national panel data of local option sales taxes at the monthly frequency. I calculate state-by-month population weighted averages and standard deviations of local sales tax rates. I document ten stylized facts concerning the time series patterns and spatial dynamics of local sales tax rates. The paper then proposes a “tax system” approach to tax competition where states compete on a variety of margins -- including restrictions on localities' tax setting authority -- that are often ignored by the standard focus on tax rates. 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 systems.

Keywords: Commodity Taxation, Local Public Finance, Fiscal Federalism, Spatial Tax Competition

JEL Classification: H20, H71, H77, R50, L81