The Tax Gradient: Spatial Aspects of Fiscal Competition
David Agrawal ()
No 5292, CESifo Working Paper Series from CESifo Group Munich
State borders create a discontinuous tax treatment of retail sales. In a Nash game, local tax rates will be higher on the low-state-tax side of a border. Local taxes will decrease from the nearest high-tax border and increase from the low-tax border. Using driving time from state borders and all local sales tax rates, local tax rates on the low-tax side of the border are 1.25 percentage points higher, reducing the differential in state tax rates by over three-quarters. A ten minute increase in driving time from the nearest high-tax state lowers a border town’s local tax rate by 6%.
Keywords: sales taxes; cross-border shopping; tax competition; fiscal federalism (search for similar items in EconPapers)
JEL-codes: H20 H25 H73 H77 R51 (search for similar items in EconPapers)
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Journal Article: The Tax Gradient: Spatial Aspects of Fiscal Competition (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5292
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