 Local fiscal competition: An application to sales taxation with multiple federationsJournal of Urban Economics, 2016, vol. 91, issue C, 122-138 Abstract: Local sales tax rates influence the location of retail activity. This paper develops a theory and empirical identification strategy for studying sales tax competition with “multiple federations,” as exemplified by multiple counties each containing several cities. In addition to strategic interactions with nearby cities and a city’s own county, city tax rates are influenced by the tax rates of neighboring counties. Cities react heterogeneously to own-county sales tax rates depending on distance to the county border. Using data on the driving time to county borders and a comprehensive cross-section of local sales tax rates, I exploit variation in proximity to county borders to identify vertical fiscal competition. Cities located near county borders react more intensely to their county’s tax rate in comparison to towns at the interior. An increase in the neighboring county tax rate raises city tax rates in nearby counties. Keywords: Commodity taxation; Tax competition; Fiscal federalism; Local taxes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:91:y:2016:i:c:p:122-138 DOI: 10.1016/j.jue.2015.04.001 Access Statistics for this article Journal of Urban Economics is currently edited by S.S. Rosenthal and W.C. Strange More articles in Journal of Urban Economics from Elsevier |
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