Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250731 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Working Papers No. 21-14
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
States use local-option taxes to promote local revenue diversification and improve local fiscal health. However, many sub-state governments wait a long time before adopting local-option taxes or do not adopt them at all, which seems puzzling or even irrational upon first glance. This paper uses the localoption meals tax in Massachusetts as a case study to examine the factors that affect the timing of local adoptions. It finds significant positive results for adoption by neighboring municipalities, which are robust to a variety of specifications, neighbor definitions, and weighting matrices. The adoption hazard also increases if a municipality faces greater fiscal stress, such as being more constrained by a property tax limitation or receiving a larger cut in state aid. In addition, the form of local government, size of the meals tax base, and ability to export the tax to non-residents are important factors.
Subjects: 
local-option tax
yardstick competition
policy diffusion
fiscal stress
hazard model
JEL: 
C41
H71
H73
H77
R50
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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