Local Sales Taxes as a Means of Increasing Revenues and Reducing Property Tax Burdens: An Analysis Using Propensity Score Matching

Abstract

In keeping with previous literature, local option sales taxes (LOSTs) are shown to reduce property tax burdens as well as increase own source revenue, although the magnitude is larger than previously estimated. This article advances the literature by using more sophisticated econometric techniques to minimize self‐selection bias concerns. It also addresses some of the lingering questions from previous studies. Using county data from 35 states over the time period of 1983–2004, counties with LOSTs are matched to counties that have the same estimated propensity to adopt a LOST but are precluded by their states from doing so.

Information, Tax Salience, and Support for School Bond Referenda

“…Afonso () also used propensity score matching methods to examine the effect of local option sales taxes (LOSTs) on county property tax burdens and own source revenue. Specifically, similar to our methodology, Afonso () matches counties in states with LOSTs to similar counties in states that do not have access to LOSTs. See Thoemmes and Kim () for a review of the use of propensity score matching methods in the social sciences.…”

State LST Laws: A Comprehensive Analysis of the Laws Governing Local Sales Taxes

“…Policymakers should carefully examine the institutional context of research before applying outcomes and findings to their own states and, when appropriate, call for replication studies in additional legal contexts to see if laws affect the relationships of interest. governments (Afonso 2016a;Zhao and Hou 2008). A great deal of the research has been single-state analyses, but consumers of this information would be wise to ask to what extent the results are driven by the specific legal framework of the respective state under study and how well the results translate to other states.…”

“…In these cases, the state authorizes additional LSTs with state legislation. Details of the state requirements are found in Afonso (2017).…”

“…More recently Afonso's (2013Afonso's ( , 2014 and Agrawal's (2014Agrawal's ( , 2015 work has examined LSTs across states. Afonso (2014) uses a dataset of 35 states and examines county level LSTs.…”

“…LSTs have become a critical source of revenue for local governments, in fact almost 10,000 local governments have a LST in place (Drenkard 2014). The growth in LSTs has been in recent decades and the research remains less developed than the property tax literature; however, there has been in-depth analysis of LSTs in certain key areas such as: the relationship between property taxes and LSTs (Afonso 2014(Afonso , 2015aJung 2001;Krmenec 1991;Zhao and Jung 2008), the timing of LST adoptions (Afonso 2016b;Burge and Piper 2012;Luna, Bruce, and Hawkins 2007;Sjoquist et al 2007;Zhao 2005), the volatility of revenue portfolios once LSTs have become a more critical component (Afonso 2013;Hou and Seligman 2010), and the LST revenue raising capacity of local…”