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Fiscal policies in open cities with firms and households

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  • Haughwout, Andrew F.
  • Inman, Robert P.

Abstract

With the renewed interest in cities as economic centers comes a need to understand how local public services and local taxes are likely to affect city economic performance. This paper provides an equilibrium model of an open city economy with mobile firms and resident workers. Given household preferences and firm technologies and an exogenous configuration of city tax rates and national grants and fiscal mandates, the model calculates equilibrium values for firm production and input use, household consumption and housing choices, city wages, rents, and population, and finally, local tax bases, revenues, and public goods provision. The model is calibrated to the Philadelphia economy for FY 1998; model predictions are compared to recent econometric estimates of the effects of city fiscal policy on the Philadelphia private economy. We then explore two important questions for the city's fiscal future: What are the economic and fiscal consequences of raising city tax rates? Can the city shoulder a rising burden of local welfare payments and remain a viable economic center in the long-run? We find the city to be near the top of its total revenue hill and incapable of bearing significant increases in local responsibility for welfare transfers.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 31 (2001)
Issue (Month): 2-3 (April)
Pages: 147-180

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Handle: RePEc:eee:regeco:v:31:y:2001:i:2-3:p:147-180

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Cited by:
  1. Carlino, Gerald A. & Inman, Robert P., 2013. "Local deficits and local jobs: Can US states stabilize their own economies?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 517-530.
  2. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, 03.
  3. Kalin Nikolov & Alex Michaelides & Nobuhiro Kiyotaki, 2007. "From Shirtsleeves to Shirtsleeves in a Long Lifetime," 2007 Meeting Papers 357, Society for Economic Dynamics.
  4. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2007. " Winners and Losers in Housing Markets," CDMA Conference Paper Series 0705, Centre for Dynamic Macroeconomic Analysis.
  5. Jordan Rappaport, 2006. "Consumption amenities and city crowdedness," Research Working Paper RWP 06-10, Federal Reserve Bank of Kansas City.
  6. Clément Carbonnier, 2008. "Fiscal competition between decentralized jurisdictions, theoretical and empirical evidence," THEMA Working Papers 2008-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  7. Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2004. "Local Revenue Hills: Evidence from Four U.S. Cities," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 570-585, May.
  8. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
  9. Cadot, Olivier & Roller, Lars-Hendrik & Stephan, Andreas, 2006. "Contribution to productivity or pork barrel? The two faces of infrastructure investment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1133-1153, August.
  10. Robert Inman, 2005. "Financing Cities," NBER Working Papers 11203, National Bureau of Economic Research, Inc.
  11. Rappaport, Jordan, 2008. "Consumption amenities and city population density," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 533-552, November.
  12. Robert P. Inman, 2010. "States in Fiscal Distress," NBER Working Papers 16086, National Bureau of Economic Research, Inc.

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