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Optimal Local Sales Tax

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  • A.F. Aisha Ghaus

    (Applied Economics Research Centre, University of Karachi, P.O. Box 8403, Karachi-75270, Pakistan)

Abstract

The paper derives the consequences of a local sales tax within the framework of a spatial, general equilibrium model of an 'open' city. The model is initially set up for the residential economy only, with an exogenously given wage rate. Results of the simulations reveal that there exists a well-defined sales tax Laffer curve and an optimal revenue-maximising tax rate. Incorporation of the production side of the economy, with wage rate adjustment following the imposition of tax, strengthens the case for a higher sales taxation. The optimal sales tax rate appears to be sensitive to the exogenously given property tax rate, housing preferences, housing technologies and the elasticity of labour demand with respect to the wage rate.

Suggested Citation

  • A.F. Aisha Ghaus, 1995. "Optimal Local Sales Tax," Urban Studies, Urban Studies Journal Limited, vol. 32(8), pages 1369-1381, August.
    • Handle: RePEc:sae:urbstu:v:32:y:1995:i:8:p:1369-1381
    DOI: 10.1080/00420989550012528
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    References listed on IDEAS

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    1. Ehsan Ahmed, 1981. "Production Functions and Input Elasticities in the Construction of Low -Cost Housing.A Comparison of Building Firms in Pakistan with Firms in Five other Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 20(4), pages 417-425.
    2. Haurin, Donald R., 1980. "The effect of property taxes on urban areas," Journal of Urban Economics, Elsevier, vol. 7(3), pages 384-396, May.
    3. Sullivan, Arthur M., 1985. "The general-equilibrium effects of the residential property tax: Incidence and excess burden," Journal of Urban Economics, Elsevier, vol. 18(2), pages 235-250, September.
    4. Wheaton, William C., 1974. "A comparative static analysis of urban spatial structure," Journal of Economic Theory, Elsevier, vol. 9(2), pages 223-237, October.
    5. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 1978. "The long-run effects of a residential property tax and local public services," Journal of Urban Economics, Elsevier, vol. 5(2), pages 241-262, April.
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    Cited by:

    1. Rogers, Cynthia L., 2004. "Local Option Sales Tax (LOST) Policy on the Urban Fringe," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 34(01), pages 1-24.

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