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Joylynn Pruitt and Joshua C. Hall
''Are state governments revenue maximizers? Evidence from the sales tax''
( 2017, Vol. 37 No.4 )
Analyses of interjurisdictional competition have extensively proved the presence of competition between local governments and the constraining effect of federalism or fiscal decentralization on government size. Few papers have applied local-level theories to the state level, despite the applicability of such theories to larger subnational governments. We apply a Leviathan model of government to state level sales taxes to determine whether states set sales tax rates according to the revenue maximizing rate. We find that states consistently set sales tax rates lower than the rate a Leviathan government would implement.
Keywords: fiscal decentralization, Leviathan, tax competition, Laffer curve
JEL: H2 - Taxation, Subsidies, and Revenue: General
H7 - State and Local Government; Intergovernmental Relations: General
Manuscript Received : Dec 21 2016 Manuscript Accepted : Dec 28 2017

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