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Strategic Fiscal Interdependence: County And Municipal Adoptions Of Local Option Sales Taxes

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  • Burge, Gregory S.
  • Piper, Brian

Abstract

This study contributes to the tax competition literature by investigating the determinants of local option sales tax (LOST) adoptions using a model that simultaneously accounts for the presence of horizontal and vertical fiscal interactions. We use discrete time Cox Proportional Hazard regressions to study adoption patterns for county and municipal LOSTs in an environment where municipalities were authorized to implement LOSTs nearly two decades before counties. Controlling for factors measuring fiscal stress and the jurisdiction’s ability to export its taxes, we demonstrate that both vertical and horizontal fiscal spillovers play an important role in characterizing the strategic interdependence of local governments when they tax a common retail sales base.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 65 (2012)
Issue (Month): 2 (June)
Pages: 387-415

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Handle: RePEc:ntj:journl:v:65:y:2012:i:2:p:387-415

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  1. Martin Feldstein & Gilbert Metcalf, 1987. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," NBER Working Papers 1791, National Bureau of Economic Research, Inc.
  2. Fischel, William A, 1992. "Property Taxation and the Tiebout Model: Evidence for the Benefit View from Zoning and Voting," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 171-77, March.
  3. Zodrow, George R., 2001. "The Property Tax as a Capital Tax: A Room with Three Views," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 139-56, March Cit.
  4. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  5. Mieszkowski, Peter & Zodrow, George R, 1989. "Taxation and the Tiebout Model: The Differential Effects of Head Taxes, Taxes on Land Rents, and Property Taxes," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1098-1146, September.
  6. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, vol. 49(2), pages 165-76, June Cita.
  7. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  8. Anderson, Nathan B., 2006. "Beggar Thy Neighbor? Property Taxation of Vacation Homes," National Tax Journal, National Tax Association, vol. 59(4), pages 757-80, December .
  9. Ashworth, John & Geys, Benny & Heyndels, Bruno, 2006. "Determinants of tax innovation: The case of environmental taxes in Flemish municipalities," European Journal of Political Economy, Elsevier, vol. 22(1), pages 223-247, March.
  10. Johannes Rincke, 2009. "Yardstick competition and public sector innovation," International Tax and Public Finance, Springer, vol. 16(3), pages 337-361, June.
  11. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 119-149, April.
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