REEXAMINING THE BORDER TAX EFFECT: A CASE STUDY OF WASHINGTON STATE

Rossitza Wooster (wooster@pdx.edu) and Joshua W. Lehner

Contemporary Economic Policy, 2010, vol. 28, issue 4, 511-523

Abstract: Without an income tax, Washington State relies heavily upon its sales tax revenue to fund public goods and services. Bordering Idaho and especially Oregon, where the sales tax is substantially lower, the juxtaposition of the different tax structures generates the border tax effect in Washington's border counties. Controlling for unobservable county‐specific characteristics and spatial autocorrelation, we find that the price elasticity generated by the sales tax discrepancy over the years 1992–2006 is −3.11. We estimate that elimination of the sales tax differential between Washington and its neighboring states would generate tax revenue in excess of $145 million at the state level and over $21 million at the county level in border counties. (JEL C23, D12, E62, H71)

Date: 2010
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