Abstract
Local governments are expanding their revenue portfolios and becoming less dependent on property taxes. It should not be assumed, however, that this diversification is increasing the stability of local governmentsʼ own source revenue, as previous research suggests. It is thus important for local government officials to know how this process will affect the stability of their own source revenue, as they are almost certainly diversifying away from a stable tax, the property tax (Groves and Kahn, 1952; McCubbins and Moule, 2010), and moving toward a more volatile tax, such as the sales tax. Using county-level data in thirty-five states, I examine the effect of local option sales taxes (LOSTs) on the volatility of own source revenue and find that greater use of LOSTs increases revenue volatility.
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