FISCAL ZONING AND SALES TAXES: DO HIGHER SALES TAXES LEAD TO MORE RETAILING AND LESS MANUFACTURING?

Using data from Florida counties, we test the hypothesis that local government officials in jurisdictions that have higher local sales taxes are more likely to use fiscal zoning to attract retailing. We find that total retail employment is not significantly affected by local sales tax rates, but employment in big box and anchor stores rises significantly in jurisdictions where sales tax rates increase. We also find that manufacturing employment falls significantly in these jurisdictions. These results suggest that local officials in jurisdictions with higher sales tax rates concentrate on attracting large stores and shopping centers, and that their efforts crowd out manufacturing. Our results suggest that an increase of] percentage point in a county-level local sales tax rate will result in 258 additional retail jobs and the loss of 838 manufacturing jobs.