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Abstract

Many state legislatures grant local governments the authority to enact sales taxes on retail sales transactions that occur within local jurisdictions. Local government reliance on these local option sales tax (LOST) revenues is increasing. In many states, including Oklahoma, municipal governments are unrestricted as to the LOST rate that can be imposed. The ability to generate LOST revenues, however, may depend on many factors outside a local government’s domain, including proximity to large, urban retail centers, and tax competition from other localities. This paper investigates aspects of LOST policy for municipal governments located on the urban fringe using all Oklahoma municipalities that imposed a LOST from 1990 to 2001. An important finding is that the revenue impact of increasing LOST rates (i.e., the LOST tax elasticity) depends on the urban influence measure. The implications are important for guiding nonmetropolitan municipal governments in the determination of LOST policy

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