The Tax Gradient: Spatial Aspects of Fiscal Competition

49 Pages Posted: 23 Apr 2015

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; University of Kentucky - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2015

Abstract

State borders create a discontinuous tax treatment of retail sales. In a Nash game, local tax rates will be higher on the low-state-tax side of a border. Local taxes will decrease from the nearest high-tax border and increase from the low-tax border. Using driving time from state borders and all local sales tax rates, local tax rates on the low-tax side of the border are 1.25 percentage points higher, reducing the differential in state tax rates by over three-quarters. A ten minute increase in driving time from the nearest high-tax state lowers a border town’s local tax rate by 6%.

Keywords: sales taxes, cross-border shopping, tax competition, fiscal federalism

JEL Classification: H200, H250, H730, H770, R510

Suggested Citation

Agrawal, David R., The Tax Gradient: Spatial Aspects of Fiscal Competition (April 23, 2015). CESifo Working Paper Series No. 5292, Available at SSRN: https://ssrn.com/abstract=2597976

David R. Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

HOME PAGE: http://www.uky.edu/~drag222/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
122
Abstract Views
1,255
rank
54,011
PlumX Metrics