Dynamic Sales Tax Competition: Evidence from Panel Data at the Border

38 Pages Posted: 31 Aug 2020

See all articles by Melissa Gentry

Melissa Gentry

affiliation not provided to SSRN

Nadia Greenhalgh-Stanley

Kent State University

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: March, 2020

Abstract

We examine both vertical and horizontal tax competition over time by studying the strategic response of county sales taxation to state sales taxes and to cross-border neighboring municipalities’ combined (state and county) taxes. Using county and state sales tax data from 2003 through 2009, we employ both static and dynamic panel analysis as well as an instrumental variables approach in combination with a border analysis. Our results confirm the presence of tax competition in the cross section, as previous studies have found. Results from the fixed-effects and dynamic panel analysis also indicate the presence of vertical competition, though quite small, as counties are consistently responsive to changes in their own state sales tax level across all models and specifications. However, the panel findings suggest little to no horizontal tax competition. Following Parchet (2019), we address additional concerns about endogeneity by instrumenting the neighboring-county sales tax rate with the state-level sales tax rate of the neighboring state. Results from instrumental variables analysis reinforce the presence of a small vertical tax competition between local and state sales tax policies. Interestingly, our results, like those of Parchet (2019), indicate that cross-border local sales tax rates act as strategic substitutes.

JEL Classification: H2, H7

Suggested Citation

Gentry, Melissa and Greenhalgh-Stanley, Nadia and Rohlin, Shawn M. and Thompson, Jeffrey P., Dynamic Sales Tax Competition: Evidence from Panel Data at the Border (March, 2020). FRB of Boston Working Paper No. 20-5, Available at SSRN: https://ssrn.com/abstract=3682689 or http://dx.doi.org/10.29412/res.wp.2020.05

Melissa Gentry (Contact Author)

affiliation not provided to SSRN

No Address Available

Nadia Greenhalgh-Stanley

Kent State University ( email )

466 College of Business
Kent State University
Kent, OH 44242
United States
(330)672-1087 (Phone)

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

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

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

Paper statistics

Downloads
5
Abstract Views
103
PlumX Metrics