| Description |
The geographic diffusion of policy is a well-documented phenomenon, but the mechanisms underlying diffusion are more obscure. This study describes and explains municipal property and sales tax rates. It examines the influence of diffusion in this rate-setting process. Existing literature describes two such mechanisms driving such diffusion: learning and competition, but leaves the question of the relative influence of these mechanisms in significant doubt. An examination of municipal tax rates, financial and demographic data shows that, when setting their own sales and property tax rates, local governments weigh the rates of their neighbors more heavily than other factors. Evidence implies a stronger role for learning and less robust role for tax competition as explanations for municipal tax rate diffusion. Budgetary demands, as well as state-mandated formal rules, also influence local government rate-setting behavior. |
