Conditions for Competition: Assessing the Competitive Dynamics of US Counties

Research in public policy examines specific theories that drive policy adoption among jurisdictions. One of these theories, referred to in the economics literature as economic competition (or strategic competition), posits that local governments may engage in competition with one another because of the potential interjurisdictional economic spillover effects of certain fiscal policies. In this article, sales tax rates, a common, yet overlooked, policy instrument in the policy literature is examined to determine if sales tax rates drive competition among counties. Testing several hypotheses, this study finds that sales tax rate increases can exacerbate competition among counties. However, this relationship is conditional on the per capita county income; more specifically, poorer counties are more vulnerable to the effects of economic competition than wealthier counties. Furthermore, many other processes influence sales tax increases, depending on how the process is modeled. Thus, economic competition is a multidimensional process shaped by a multitude of factors