State Versus Local Tax Enforcement Effectiveness: Evidence from Airbnb

• In Event: Tax Administration, Compliance, and Mobility

Abstract

The availability of local knowledge useful for enforcement of sales taxes is a common motivation for local administration in the United States. State governments, by contrast, are thought to provide superior technical expertise and capacity to the position. This research investigates the supply of Airbnb units in Colorado, where there is geographic variation in the level of government responsible for sales tax administration. We test a theoretical model in which the behavioral response to tax hikes is a function of the degree of tax compliance. Empirical evidence from monthly reservations by Airbnb units suggests that hosts are more sensitive to sales tax rate changes when municipalities with local collection are responsible for enforcement, implying that local governments are more effective enforcers of the sales tax than the state on Airbnb properties.

Authors

• Justin Ross, Indiana University

• Luis Navarro