Lost Stability? Consumption Taxes and the Cyclical Volatility of State and Local Revenues
22 Pages Posted: 16 Nov 2007
Date Written: November 1, 2007
Some state and local governments continue to consider moving from income and property taxes, respectively, towards consumption taxes. Since the mid-1970s Georgia's local governments have had the option to substitute sales taxes for a portion of property tax receipts; the adoption of local option sales taxes (LOST) has since been widespread. This paper examines the effects of LOST on the long- and short-run volatility of local own-source revenues: Is adopting the local option sales taxes increasing or decreasing the volatility of own-source revenues? Using a large panel dataset of county governments in the state of Georgia across two most recent economic cycles, we find that LOST adds to the variability of own-source revenues, confirming that consumption taxes are less stable than property taxes they displace. This finding contributes to literature and bears direct implications to current policy debates.
Keywords: state and local, sales taxes, revenue, volatility
JEL Classification: H71, H72
Suggested Citation: Suggested Citation