Local sales taxes can reduce the differences between taxes at state borders

Local sales taxes are an important source of revenue for municipalities and counties in over thirty states. How do municipalities set local sales taxes? Studying the sales tax differentials between high and low sales tax states, David R. Agrawal finds that local jurisdictions in low-tax states set higher local sales tax rates than jurisdictions on the other side of the border in the high-tax state. In addition, jurisdictions far inside low-tax states set lower tax rates compared to border towns.