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Consumption tax competition among governments: Evidence from the United States

Author

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  • Vrijburg, H.
  • Jacobs, J.P.A.M.
  • Ligthart, J.E.

    (Groningen University)

Abstract

The paper contributes to a small but growing literature that estimates tax re- action functions of governments competing with other governments. We analyze consumption tax competition between US states, employing a panel of state-level data for 1977-2003. More specifically, we study the impact of a state's spatial characteristics|that is, its size, geographic position, and border length on the strategic interaction with its neighbors. For this purpose, we calculate for each state an average effective consumption tax rate, which covers both sales and excise taxes. In addition, we pay attention to dynamics by including lagged dependent variables in the tax reaction function. We find overwhelming evidence for strategic interaction among state governments, but only partial support for the effect of spatial character- istics on tax setting. Tax competition seems to have lessened in the 1990s compared to the early 1980s.

Suggested Citation

  • Vrijburg, H. & Jacobs, J.P.A.M. & Ligthart, J.E., 2007. "Consumption tax competition among governments: Evidence from the United States," Research Report 07008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:07008
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    File URL: http://irs.ub.rug.nl/ppn/304961620
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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