Does Competition Tame the Leviathan? A Case of Earmarked Spending for Transportation

초록

Sales tax rate varies widely across state and local governments, and the variations affect sales base with mobile shoppers. This study empirically examines competition over tax base in sales taxation and estimates the direct and indirect effects of tax competition on sales tax base through geospatial analysis. The results demonstrate the existence of competition for local sales taxes, as well as a reduction in sales tax bases. An increase in sales tax rates of a county reduces its sales tax base; furthermore, the increase expands the base in its neighbors as a consequence of spillover-effect. These findings imply the mobility of shoppers and reduction of sales tax base in higher-taxing areas.

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