The tax gradient: Spatial aspects of fiscal competition

Research output: Contribution to journalArticlepeer-review

52 Scopus citations

Abstract

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 lowtax 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 percent.

Original languageEnglish
Pages (from-to)1-29
Number of pages29
JournalAmerican Economic Journal: Economic Policy
Volume7
Issue number2
DOIs
StatePublished - 2015

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (all)

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