Local option sales taxes and fiscal disparity: The case of Georgia Counties

Public Budgeting and Finance

Volumn 28, Issue 1, 2008, Pages 39-57

  Zhao, Zhirong ^a   Hou, Yilin ^b  

^a UNIVERSITY OF MINNESOTA   (United States)

^b UNIVERSITY OF GEORGIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 57749142197     PISSN: 02751100     EISSN: 15405850     Source Type: Journal    
DOI: 10.1111/j.1540-5850.2008.00896.x     Document Type: Article

References (47)

1. Ronald J. Shadbegian, "The Effect of Tax and Expenditure Limitations on the Revenue Structure of Local Government, 1962-87," National Tax Journal 52 (1999).
2. David L. Sjoquist, Sally Wallace, and Barbara Edwards, "What a Tangled Web: Local Property, Income and Sales Taxes," in Urban Issues and Public Finance: Collected Essays in Honor of Dick Netzer, ed. Amy Schwartz (New York: Lincoln Institute of Land Policy, 2004).
3. As of January 2004, all but five counties in Georgia have adopted the LOST. The five counties without the LOST are Cobb, Cherokee, DeKalb, Gwinnett, and Rockdale. For more about the LOST, see Zhirong Zhao, "Motivations, Obstacles, and Resources: The Adoption of the General-Purpose LOST in Georgia Counties," Public Finance Review 33, no. 6 (2005).
4. Changhoon Jung, The Impact of the Special Purpose Local Option Sales Tax (SPLOST) on LocalGovernment Finance in Georgia, Public Policy Research Series (Athens, GA: Carl Vinson Institute of Government, University of Georgia, 2002).
5. This tax is levied only in Fulton County and DeKalb County. See Metropolitan Atlanta Rapid Transit Authority, Comprehensive Annual Financial Report (Atlanta, GA: Metropolitan Atlanta Rapid Transit Authority, 2004).
6. Betty J. Clements and J. Devereux Weeks, County and Municipal Revenue Sources in Georgia (Athens, GA: Carl Vinson Institute of Government, University of Georgia, 1997).
7. Helen F. Ladd, "Measuring Disparities in the Fiscal Condition of Local Governments," in Fiscal Equalization for State and Local Government Finance (Westport, CT, and London: Greenwood, Praeger with National Tax Association, 1994).
8. Helen F. Ladd and John Yinger, "The Case for Equalizing Aid," in Tax Policy in the Real World (Cambridge, and New York: Cambridge University Press, 1999)
9. John Yinger, "On Fiscal Disparities across Cities," Journal of Urban Economics 19, no. 3 (1986).
10. Advisory Commission on Intergovernmental Relations, Measuring State Fiscal Capacity, (Washington, DC: Advisory Commission on Intergovernmental Relations, 1986)
11. Ronald F. Ferguson and Helen Ladd, "Measuring the Fiscal Capacity of U.S. Cities," in Measuring Fiscal Capacity, ed. H. Clyde Reeves (Boston: Oelgeschlager Gunn & Hain in association with the Lincoln Institute of Land Policy, 1986).
12. Katharine L. Bradbury, et al. "State Aid to Offset Fiscal Disparities across Communities," National Tax Journal 37, no. 2 (1984)
13. Ladd, "Measuring Disparities in the Fiscal Condition of Local Governments."
14. Advisory Commission on Intergovernmental Relations, Measuring State Fiscal Capacity; Advisory Commission on Intergovernmental Relations, Tax Capacity of the States (Washington, DC: Advisory Commission on Intergovernmental Relations, 1986).
15. Ferguson and Ladd, "Measuring the Fiscal Capacity of U.S. Cities."
16. Ladd, "Measuring Disparities in the Fiscal Condition of Local Governments"
17. Thomas A. Downes and Thomas F. Pogue, "Intergovernmental Aid to Reduce Fiscal Disparities: Problems of Definition and Measurement," Public Finance Quarterly 20, no. 4 (1992).
18. Matthew M. Craft, "Lost and Found: The Unequal Distribution of Local Option Sales Tax Revenue among Iowa Schools," Iowa Law Review, no. 88 (2002).
19. Georgeanne Artz and Kenneth E. Stone, "An Analysis of the Transfer of Funds from Weak Retail Counties to Strong Retail Counties in Iowa via Local Option Sales Taxes," paper presented at the Annual Meeting of American Agricultural Economics Association, Montreal, Quebec, July 27-30, 2003.
20. Ross Rubenstein and Catherine Freeman, "Do Local Sales Taxes for Education Increase Inequities? The Case of Georgia's ESPLOST," Journal of Education Finance 28 (2003).
21. Ladd, "Measuring Disparities in the Fiscal Condition of Local Governments."
22. Robert Berne and Leanna Stiefel, The Measurement of Equity in School Finance: Conceptual, Methodological, and Empirical Dimensions (Baltimore: Johns Hopkins University Press, 1984)
23. Yaakov Kondor, "An Old-New Measure of Income Inequality," Econometrica 39, no. 6 (1971)
24. Farhad Mehran, "Linear Measures of Income Inequality," Econometrica 44, no. 4 (1976).
25. Available at the website of Georgia GIS Clearinghouse. Available from: https://gis1.state.ga.us/login.asp: accessed 20 September 2006.
26. The deflator used is the Consumer Price Index (CPI). Available at the website of the Bureau of Labor Statistics, Department of Labor: http://www.bls.gov/cpi/: Accessed 20 September 2006.
27. Artz and Stone, "An Analysis of the Transfer of Funds from Weak Retail Counties to Strong Retail Counties in Iowa Via Local Option Sales Taxes"
28. Craft, "Lost and Found: The Unequal Distribution of Local Option Sales Tax Revenue among Iowa Schools"
29. Rubenstein and Freeman, "Do Local Sales Taxes for Education Increase Inequities? The Case of Georgia's ESPLOST."
30. These five counties are Fulton, Cobb, Gwinnett, DeKalb, and Clayton. The only exception is Chatham County where Savannah City is located.
31. Zhirong Zhao, "Motivations, Obstacles, and Resources: The Adoption of the General-Purpose Local Option Sales Tax in Georgia Counties," Public Finance Review 33, no. 6 (2005).
32. Positive tax exportation ("sales surplus") occurs when a county collects sales tax revenue from nonresidents; in contrast, negative tax exportation ("sales deficit") means a county loses sales tax revenue to other counties.
33. Although one may expect that low-income families will spend a higher share of income on sales tax revenue, the aggregate result at the county level is more complicated. In this data we find that the relationship between the sales-income share and per capita income among the counties is roughly U-shaped the share is highest for median personal income) rather than linear.
34. The exportation can be in-state or out-of-state. Making this distinction, however, will not affect the results of analysis because we focus on the "net" exportation for each county and the corresponding change in its revenue capacity, not on the direction of exportation.
35. Advisory Commission on Intergovernmental Relations, Measuring State Fiscal Capacity
36. Advisory Commission on Intergovernmental Relations, Tax Capacity of the States.
37. Among the ten counties with highest property tax capacity, only three are located in the Atlanta MSA.
38. Ferguson and Ladd, "Measuring the Fiscal Capacity of U.S. Cities."
39. This study treats each county as a unit for inequality analysis. The dispersion measures are not weighted by population.
40. For details about the relative mean deviation, see Kondor, "An Old-New Measure of Income Inequality."
41. Berne and Stiefel, The Measurement of Equity in School Finance: Conceptual, Methodological, and Empirical Dimensions.
42. For further discussion, see Farhad Mehran, "Linear Measures of Income Inequality," Econometrica 44, no. 4 (1976).
43. An intuitive analogy is that dispersion functions like financial risk; so it is possible that adding two dispersed items produces a more equal distribution, as is the case that adding two positively correlated stocks may produce a lower level of (unsystematic) risk than either one individually.
44. Center on Budget and Policy Priorities and Economic Policy Institute, "State Income Inequality Continued to Grow in Most States in the 1990s, Despite Economic Growth and Tight Labor Markets" (Washington, DC: Center on Budget and Policy Priorities, 2002; available from: http://www.cbpp.orA/1-18-00sfp.htm: accessed 7 January 2008).
45. National Conference of State Legislatures, Critical Issues in State-Local Fiscal Policy: A Guide to Local Option Taxes (Denver, CO: National Conference of State Legislatures, 1997).
46. Ladd, "Measuring Disparities in the Fiscal Condition of Local Governments."
47. Helen F. Ladd, ""Population Growth, Density and the Costs of Providing Public Services," Urban Studies, no. 2 (1992).