In this article, the tax base elasticity and revenue potential of the municipal telecommunications tax in Illinois over the period 2004 to 2007 are studied. The hypothesis that the municipal telecommunications tax base is perfectly inelastic with respect to variation in the tax rate cannot be rejected. Under the assumption that the tax base is purely inelastic, the maximum revenue potential of this local option tax is estimated. This study suggests that municipal telecommunications taxes have the potential to provide much needed relief to the current and future fiscal stress of municipal governments with minimal economic efficiency costs.
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