CONTRIBUTED PAPER
Behavioural patterns of leaders versus followers in setting local sales tax policy
Jongmin Shon,
Yilin Hou,
Corresponding Author
Jongmin Shon
School of Public Administration, Soongsil University
Correspondence
Jongmin Shon, School of Public Administration, Soongsil University, Seoul, 06978, Republic of Korea.
Email: [email protected]
Search for more papers by this authorYilin Hou
Maxwell School of Citizenship and Public Affairs, Syracuse University
Search for more papers by this authorJongmin Shon,
Yilin Hou,
Corresponding Author
Jongmin Shon
School of Public Administration, Soongsil University
Correspondence
Jongmin Shon, School of Public Administration, Soongsil University, Seoul, 06978, Republic of Korea.
Email: [email protected]
Search for more papers by this authorYilin Hou
Maxwell School of Citizenship and Public Affairs, Syracuse University
Search for more papers by this authorFirst published: 11 October 2024
Submitted: July 2023
Abstract
Sales tax has been a popular revenue source for local governments in 38 US states. In this fiscal climate, both horizontal and vertical tax competition are frequently observed. Local governments are concerned about adverse impacts thereof on their revenue as mobile shoppers react to tax rate changes by purchasing in lower-tax jurisdictions. So far, few studies have accounted for potential endogeneity in the behavioural patterns of leaders versus followers in setting local sales tax policy. Using a 40-year panel dataset from Texas, this study identifies leader municipalities in changing sales tax rates and examines how municipalities asymmetrically respond to multi-tiered rate changes. The findings depict a crowding-out story in vertical tax competition and reveal crowding-in effects in horizontal competition, with leader municipalities immune to both effects.
Open Research
DATA AVAILABILITY STATEMENT
The data that support the empirical findings of this study are available to the public at https://mycpa.cpa.state.tx.us/taxrates/RateHist.do.
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