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The effect of state and local sales taxes on employment at state borders

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  • Jeffrey P. Thompson
  • Shawn M. Rohlin

Abstract

This paper estimates the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed data set of local tax rates. Sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state. The effects also represent an upper-bound, largely driven by employment shifting across the state border. We also find that employment in food and beverage stores is negatively affected when cross-border neighbors adopt low sales tax rates on food.

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File URL: http://www.federalreserve.gov/pubs/feds/2013/201349/201349abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/2013/201349/201349pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2013-49.

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Date of creation: 2013
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Handle: RePEc:fip:fedgfe:2013-49

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  1. John Abowd & Bryce Stephens & Lars Vilhuber, 2006. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," Longitudinal Employer-Household Dynamics Technical Papers 2006-01, Center for Economic Studies, U.S. Census Bureau.
  2. Thompson, Jeffrey P. & Rohlin, Shawn M., 2012. "The Effect Of Sales Taxes On Employment: New Evidence From Cross-Border Panel Data Analysis," National Tax Journal, National Tax Association, vol. 65(4), pages 1023-41, December.
  3. Timothy J. Besley & Harvey S. Rosen, 1998. "Sales Taxes and Prices: An Empirical Analysis," NBER Working Papers 6667, National Bureau of Economic Research, Inc.
  4. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2010. "Cross-Border Shopping: A Survey," International Advances in Economic Research, Springer, vol. 16(2), pages 135-148, May.
  5. 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.
  6. Walsh, Michael J. & Jones, Jonathan D., 1988. "More Evidence on the "Border Tax" Effect: The Case of West Virginia, 1979-84," National Tax Journal, National Tax Association, vol. 41(2), pages 261-65, June.
  7. Ronald C. Fisher, 1980. "Local Sales Taxes: Tax Rate Differentials, Sales Loss, and Revenue Estimation," Public Finance Review, , vol. 8(2), pages 171-188, April.
  8. Luna, LeAnn & Bruce, Donald J. & Hawkins, Richard R., 2007. "Maxing Out: An Analysis of Local Option Sales Tax Rate Increases," National Tax Journal, National Tax Association, vol. 60(1), pages 45-63, March.
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