THE EFFECT OF SALES TAXES ON EMPLOYMENT: NEW EVIDENCE FROM CROSS-BORDER PANEL DATA ANALYSIS

Abstract

This paper estimates the effect of sales taxes on employment using county-level quarterly data and a "border approach," comparing employment changes for counties in states that raised sales tax rates with their cross-border neighbors. We augment standard distance-related border measures with an economically-oriented border measure based on the share of county residents who work in a neighboring state. We find that the employment effects are larger in the retail trade industry and for female workers, and that they are concentrated in counties with relatively large shares of residents working in another state.