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The Grants are Falling! The Grants are Falling! How Municipal Governments Changed Taxes in Response to Provincial Support in New Brunswick, 1983­2003

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  • Craig Brett
  • Christina Tardif

Abstract

The real value of grants to New Brunswick municipal councils from the provincial government fell dramatically from 1983 to 2003. At the same time, municipal property tax rates increased, especially among municipalities with comparatively low tax rates in 1983. This study uses an econometric model of the joint determination of local property tax rates and local property tax bases to examine t he hypothesis that municipal responses to falling grants were constrained b y tax competition. After controlling for observable characteristics, there is little evidence of spatial interaction among jurisdictions, suggesting th at tax competition was not a major factor in municipal decisions. The grant cuts th emselves appear to be a far more important determinant of changes in property tax r ates. There is also some evidence that the tax base is sensitive to a municipality's own tax rates. However, the elasticity of the tax base with respect to the tax ra te is small enough that there remains scope for municipalities to increase tax reve nue by increasing their tax rates.

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File URL: http://dx.doi.org/10.3138/cpp.34.4.441
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Bibliographic Info

Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 34 (2008)
Issue (Month): 4 (December)
Pages: 441-456

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Handle: RePEc:cpp:issued:v:34:y:2008:i:4:p:441-456

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  1. Kelejian, Harry H. & Prucha, Ingmar R., 2004. "Estimation of simultaneous systems of spatially interrelated cross sectional equations," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 27-50.
  2. Brett, C. & Pinkse, J., 1998. "The Determinants of Municipal Tax Rates in British Columbia," UBC Departmental Archives 98-03, UBC Department of Economics.
  3. Braid Ralph M., 1993. "Spatial Competition between Jurisdictions Which Tax Perfectly Competitive Retail (or Production) Centers," Journal of Urban Economics, Elsevier, vol. 34(1), pages 75-95, July.
  4. Bradford, David F & Oates, Wallace E, 1971. "Towards a Predictive Theory of Intergovernmental Grants," American Economic Review, American Economic Association, vol. 61(2), pages 440-48, May.
  5. Bailey, Stephen J & Connolly, Stephen, 1998. " The Flypaper Effect: Identifying Areas for Further Research," Public Choice, Springer, vol. 95(3-4), pages 335-61, June.
  6. Brennan, G. & Pincus, J. J., 1996. "A minimalist model of federal grants and flypaper effects," Journal of Public Economics, Elsevier, vol. 61(2), pages 229-246, August.
  7. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
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Cited by:
  1. Janeba, Eckhard & Osterloh, Steffen, 2012. "Tax and the city: A theory of local tax competition and evidence for Germany," ZEW Discussion Papers 12-005, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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