Local option sales taxes and county rainy day funds
Journal of Public Budgeting, Accounting & Financial Management
ISSN: 1096-3367
Article publication date: 1 March 2016
Abstract
Rainy day stabilization funds (RDSFs) and local option sales taxes (LOSTs) are two strategies local governments deploy to combat fiscal stress. While the literature on both is robust, it has thus far failed to consider empirically that the two may be connected. One way the marginal LOST dollar could be spent is by saving it for future use. We test the connection with a sample of 414 counties and correct for selection bias with the Heckman correction technique. We find that each $10 increase in LOST revenue per capita is associated with a $0.10 increase in undesignated general fund balance. Though small, the positive effect size supports the theory that LOSTs contribute to a greater propensity to save.
Citation
Levine, H., Fudge, M. and Propheter, G. (2016), "Local option sales taxes and county rainy day funds", Journal of Public Budgeting, Accounting & Financial Management, Vol. 28 No. 4, pp. 467-487. https://doi.org/10.1108/JPBAFM-28-04-2016-B003
Publisher
:Emerald Publishing Limited
Copyright © 2016 by PrAcademics Press