Abstract
This study examines the impact of sales tax differentials on taxable sales in rural south Georgia during 1980-89, using a cell-mean corrected regression model. Results indicate that sales tax rate differentials have a significant effect on urban counties’ taxable sales. The level of impact on taxable sales, as measured by its elasticity coefficient, is influenced by the shopping characteristics of the area. A greater number of service and retail establishments tends to lessen the impact of a tax differential as search costs are reduced; nearby shopping alternatives increase the effect as travel costs are reduced. The impact of creating a sales tax differential appears to depend on the shopping attributes of the region relative to its competing areas. In a rural environment where shopping patterns are established and consumers lack convenient shopping alternatives, regional shopping centers have the potential to shift or export part of their tax burden without causing significant loss to their retail trading base.
Highlights
Most city and county governments experience the continuing problem of increasing their revenues to satisfy expanding expenditure demands
The purpose of this paper is to examine the effects of sales tax rate differentials on the levels of taxable sales in nonmetropolitan counties in south Georgia
This study examines the impact of sales tax differentials on taxable sales in rural south Georgia during 1980-89
Summary
Most city and county governments experience the continuing problem of increasing their revenues to satisfy expanding expenditure demands. One of the responses by local governments is an increased reliance on local sales taxes. By 1987, 30 states permitted their local governments to impose a local tax, usually on an urban basis; six states provided for countywide jurisdiction (Fisher 1988, 174). Local governments base their actions on the assumption that tax revenues will increase in the same proportion as the increase in the tax rate. This assumption implies that local sales will not be reduced by the increase in the tax rate. Rational action on the part of the consumer implies that a tax rate increase that causes a tax rate differential between neighboring areas may provide an incentive for consumers to substitute purchases in the lower tax jurisdiction for purchases in the higher tax jurisdiction
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