Local Sales Tax, Cross-Border Shopping, and Travel Cost

Abstract

This paper uses Nebraska sales tax data to estimate the magnitude of cross-border shopping in response to travel cost when a local sales tax changes. The results indicate that a one percent increase in a local sales tax induces cross-border shopping by 4.81 percent in a city that has an adjacent city; 1.87 percent in a city that is a 20-minute drive away from a neighboring city. The results also imply that the incentive of cross-border shopping would virtually disappear in a city that is more than a 53-minute drive away from a neighboring city.

Keywords: sales tax, cross-border shopping, distance, local taxes

JEL Classification: D12, H25, H31, H71, R12