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The fiscal impact of potential local option taxes in Massachusetts

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  • Bo Zhao

Abstract

This paper examines the potential impact of local-option taxes on meals, general sales, income, and payroll on revenue-raising capacity in Massachusetts municipalities. It finds that, while new local-option taxes would generate considerable additional revenues from untapped sources, revenue capacity is not evenly distributed across municipalities. Indeed, local-option taxes are likely to exacerbate fiscal disparities, because municipalities with low existing revenue-raising capacity often lack the tax bases for new local-option taxes. Policymakers could consider increasing equalizing state aid to offset these fiscal disparities. If more aid is not forthcoming, this paper proposes that the state change aid formulas to reflect differences across municipalities in local-option tax capacity, and to better target fiscally distressed communities. These strategies - explored in the Massachusetts context - could also be useful in other states.

Suggested Citation

  • Bo Zhao, 2010. "The fiscal impact of potential local option taxes in Massachusetts," New England Public Policy Center Working Paper 10-2, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcw:10-2
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    Cited by:

    1. Jennifer Weiner & Bo Zhao, 2015. "Measuring municipal fiscal disparities in Connecticut," New England Public Policy Center Research Report 15-1, Federal Reserve Bank of Boston.

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    Keywords

    Taxation - Massachusetts; Local finance - Massachusetts;

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