Coveting Thy Neighbors' Taxation

Abstract

Recent research has shown that a state's overall tax burden is dependent on that of neighboring states. By disaggregating a state's tax burden into its individual components, this paper demonstrates that during the period of 1967-1996, state taxes with a mobile tax base had positive response rates as high as 60 percent. Thus, a 10 percent increase in neighboring states' rates was met by an increase of up to 6 percent in the home state's rate. Taxes with relatively immobile tax bases exhibit negative responsiveness, meaning that states respond to rate increases in neighboring states by decreasing home rates.

Consumption tax competition among governments: Evidence from the United States

“…Only the population weight matrix yields a significant slope coefficient within the stability bounds (but close to the upper bound of one). 28 The estimated slope coefficient is 0.96, which is much higher than outcomes found in the literature (i.e., Rork 2003 andLuna 2004 find values of −0.16 for state-level sales taxes and 0.16 for county-level sales taxes, respectively). A possible explanation for the implausibly high estimates of δ is that statutory sales tax rates show much less variation over time than AETRs (see Sect.…”

“…Some studies find counterintuitive negative slopes for sales taxes (cf. Rork 2003), whereas others find values close to 0.9 for excises (cf. Egger et al 2005b).…”

“…Wilson (1999) provides an overview of the tax competition literature. 4 Empirical studies on consumption tax competition in the United States are: Besley and Rosen (1998), Nelson (2002), Rork (2003), Luna (2004), Egger et al (2005b), and Devereux et al (2007). Recently, studies have been conducted for other countries and country groupings.…”

“…5,6 Such a measure reflects the overall effective tax burden on consumption and should therefore be preferred over studies based on nominal (or statutory) sales tax rates only. Studies on horizontal commodity tax competition use either statutory sales tax rates (e.g., Rork 2003;Luna 2004) or statutory (specific) excise tax rates (e.g., Nelson 2002;Egger et al 2005b;Devereux et al 2007). 7 The study by Egger et al (2005a), employing AETRs for OECD countries, is a notable exception.…”

Measuring the Burden of the Corporate Income Tax Under Imperfect Competition

“…3 Recent evidence on strategic competition among the US states in tax rates includes Besley and Rosen (1998), Esteller-More and Sole-Olle (2001), Rork (2003), and Devereux, Lockwood and Redoano (2007).…”