Cross-Border Shopping and the Sales Tax: A Reexamination of Food Purchases in West Virginia

In this paper new evidence is presented of cross-border shopping in response to sales taxation. While several instructive studies provide estimates of the cross-border shopping effect, a unique opportunity is utilized to evaluate the effect of a large discrete change in sales tax policy. Using county level data on food income and sales tax data for West Virginia over the 1982-2000 period it is estimated that for every one-percentage point increase in the county relative price ratio due to sales tax change, the per capita food income decreases by about 0.7 percent. The estimates indicate that food sales fell in West Virginia border counties by about 4 percent as a result of the imposition of the 6 percent sales tax on food in 1989.