Are state governments revenue maximizers? Evidence from the sales tax

Joylynn Pruitt (jopruitt@mix.wvu.edu) and Joshua Hall
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Joylynn Pruitt: West Virginia University

Economics Bulletin, 2017, vol. 37, issue 4, 2945-2950

Abstract: Analyses of interjurisdictional competition have extensively proved the presence of competition between local governments and the constraining effect of federalism or fiscal decentralization on government size. Few papers have applied local-level theories to the state level, despite the applicability of such theories to larger subnational governments. We apply a Leviathan model of government to state level sales taxes to determine whether states set sales tax rates according to the revenue maximizing rate. We find that states consistently set sales tax rates lower than the rate a Leviathan government would implement.

Keywords: fiscal decentralization; Leviathan; tax competition; Laffer curve (search for similar items in EconPapers)
JEL-codes: H2 H7 (search for similar items in EconPapers)
Date: 2017-12-28
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