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Since the 1970s, local governments in Georgia have been authorized, upon voter approval, to levy a one-percent general-purpose Local Option Sales Tax (LOST), which is earmarked for property tax relief. Using data during 1975-2002, this study examines the adoption of the LOST in Georgia counties through a discrete-time event history analysis. The dependent variable is the binary variable of whether a county eligible for the LOST will adopt it in a particular year. According to Mohr's theory, the probability of the adoption is negatively related to the strength of the obstacles prohibiting the innovation and positively related to (1) the motivations to innovate and (2) the availability of resources for overcoming the obstacles. Most hypotheses of the study are supported by maximum likelihood estimations. The motivations of the adoption are higher in counties with higher property tax millage rates and the potential of sales tax exportation. The obstacles include high existing sales tax rates and severe tax competition. The major resource for overcoming these obstacles is the adoption of the LOST in other Georgia counties.
The relationship between the local option sales tax (LOST) and property taxes and own source revenue is not well documented in the literature. This may be due in part to the aggregated nature of the data, which fails to capture different motivations for adoption of LOSTs. Using county-level data from 35 states, this study finds that LOSTs increase own source revenue and in some circumstances decrease property tax burdens. The primary contribution of this research is that it uses a policy variable, the LOST rate, to distinguish between the two types of counties that use their LOST revenues differently. This research represents the first step in bridging the gap between the LOST literature and the tax mix choice literature.