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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.

Suggested Citation

  • Jeffrey P. Thompson & Shawn M. Rohlin, 2013. "The effect of state and local sales taxes on employment at state borders," Finance and Economics Discussion Series 2013-49, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-49
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    References listed on IDEAS

    as
    1. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association, vol. 52(2), pages 157-178, June.
    2. 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.
    3. 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.
    4. Rohlin, Shawn & Rosenthal, Stuart S. & Ross, Amanda, 2014. "Tax avoidance and business location in a state border model," Journal of Urban Economics, Elsevier, vol. 83(C), pages 34-49.
    5. 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.
    6. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2010. "Cross-Border Shopping: A Survey," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(2), pages 135-148, May.
    7. 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 165-176, June.
    8. 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 1023-1041, December.
    9. John M. Abowd & Bryce E. Stephens & Lars Vilhuber & Fredrik Andersson & Kevin L. McKinney & Marc Roemer & Simon Woodcock, 2009. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 149-230 National Bureau of Economic Research, Inc.
    10. repec:kap:iaecre:v:16:y:2010:i:2:p:135-148 is not listed on IDEAS
    11. 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.
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