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Competition over the Tax Base in the State Sales Tax

Author

Listed:
  • Jason M. Fletcher

    (University of Wisconsin-Madison)

  • Matthew N. Murray

    (University of Tennessee, Knoxville)

Abstract

The sales tax shows wide variation across states. Rates differ, some states allow local options, and the base can vary dramatically. Consumer items like food are often afforded preferential treatment, and business purchases like manufacturing machinery are exempt in some states. There is no research that explores these and other sales tax base choices. This article provides an empirical examination of sales tax base choice on the part of states using a political economy framework and tools of spatial econometrics. The analysis accommodates tax competition among states, using a variety of alternative definitions of “competitors.†The authors find little evidence that consumer exemptions are linked to needy segments of the population, while equipment exemptions are more common in states with large industrial sectors. The results also show that the nature of the interstate tax competition process differs for different elements of the base and that nongeographic competition can be especially important.

Suggested Citation

  • Jason M. Fletcher & Matthew N. Murray, 2006. "Competition over the Tax Base in the State Sales Tax," Public Finance Review, , vol. 34(3), pages 258-281, May.
  • Handle: RePEc:sae:pubfin:v:34:y:2006:i:3:p:258-281
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    Cited by:

    1. Jonathan C. Rork & Gary A. Wagner, 2009. "Reciprocity and Competition: Is There a Connection?," Working Papers 2009/1, Institut d'Economia de Barcelona (IEB).
    2. Hawley, Zackary & Rork, Jonathan C., 2015. "Competition and property tax limit overrides: Revisiting Massachusetts' Proposition 2½," Regional Science and Urban Economics, Elsevier, vol. 52(C), pages 93-107.
    3. Brian C. Hill, 2008. "Agglomerations and Strategic Tax Competition," Public Finance Review, , vol. 36(6), pages 651-677, November.
    4. Gregory M. Randolph & Michael T. Tasto, 2012. "Special Interest Group Formation in the United States: Do Special Interest Groups Mirror the Success of their Spatial Neighbors?," Economics and Politics, Wiley Blackwell, vol. 24(2), pages 119-134, July.

    More about this item

    Keywords

    tax competition; sales tax;

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