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Local fiscal competition: An application to sales taxation with multiple federations

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  • Agrawal, David R.

Abstract

Local sales tax rates influence the location of retail activity. This paper develops a theory and empirical identification strategy for studying sales tax competition with “multiple federations,” as exemplified by multiple counties each containing several cities. In addition to strategic interactions with nearby cities and a city’s own county, city tax rates are influenced by the tax rates of neighboring counties. Cities react heterogeneously to own-county sales tax rates depending on distance to the county border. Using data on the driving time to county borders and a comprehensive cross-section of local sales tax rates, I exploit variation in proximity to county borders to identify vertical fiscal competition. Cities located near county borders react more intensely to their county’s tax rate in comparison to towns at the interior. An increase in the neighboring county tax rate raises city tax rates in nearby counties.

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  • Agrawal, David R., 2016. "Local fiscal competition: An application to sales taxation with multiple federations," Journal of Urban Economics, Elsevier, vol. 91(C), pages 122-138.
  • Handle: RePEc:eee:juecon:v:91:y:2016:i:c:p:122-138
    DOI: 10.1016/j.jue.2015.04.001
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    Cited by:

    1. Sanz Córdoba, Patricia & Theilen, Bernd, 1965-, 2017. "Strategic Responses to International Tax Competition: Fiscal (De) Centralization versus Partial Tax Harmonization," Working Papers 2072/306513, Universitat Rovira i Virgili, Department of Economics.
    2. repec:eee:regeco:v:68:y:2018:i:c:p:84-97 is not listed on IDEAS
    3. Blesse, Sebastian & Martin, Thorsten, 2015. "Let's stay in touch - evidence on the role of social learning in local tax interactions," ZEW Discussion Papers 15-081, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. repec:kap:itaxpf:v:24:y:2017:i:4:d:10.1007_s10797-017-9461-4 is not listed on IDEAS
    5. repec:kap:itaxpf:v:24:y:2017:i:5:d:10.1007_s10797-016-9437-9 is not listed on IDEAS

    More about this item

    Keywords

    Commodity taxation; Tax competition; Fiscal federalism; Local taxes;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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