Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/110781 
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper No. 5292
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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 low-tax 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%.
Subjects: 
sales taxes
cross-border shopping
tax competition
fiscal federalism
JEL: 
H20
H25
H73
H77
R51
Document Type: 
Working Paper
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