John Glenn School of Public Affairs. Working Paper Series. September 2010
States and localities continue moving towards consumption taxes. Georgia’s local
governments displace a portion of their property tax receipts with revenue from the Local Option Sales Tax. This paper employs a panel dataset of Georgia counties across two economic cycles to examine the effects of consumption taxes
on the long- and short-run volatility of local own-source revenues. We offer a mean-variance approach for considering correct revenue portfolio shares across tax-instruments. Holding revenues constant we find that permanent substitution
towards a consumption tax amplifies variability of own-source revenues, implying
that consumption taxes are overweighed in current revenue portfolios.