Opting in with the Joneses: What Affects the Timing of Municipal Adoption of a Local-option Meals Tax?

States use local-option taxes to promote local revenue diversification and improve local fiscal health. However, many sub-state governments wait a long time before adopting local-option taxes or do not adopt them at all, which seems puzzling or even irrational upon first glance. This paper uses the localoption meals tax in Massachusetts as a case study to examine the factors that affect the timing of local adoptions. It finds significant positive results for adoption by neighboring municipalities, which are robust to a variety of specifications, neighbor definitions, and weighting matrices. The adoption hazard also increases if a municipality faces greater fiscal stress, such as being more constrained by a property tax limitation or receiving a larger cut in state aid. In addition, the form of local government, size of the meals tax base, and ability to export the tax to non-residents are important factors. JEL Classifications: C41, H71, H73, H77, R50