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Local Taxes, Public Services, and the Intrametropolitan Location of Firms and Households

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  • Thomas F. Luce JR

    (University of Minnesota)

Abstract

This work examines the effects of local public sector tax and spending decisions on the intrametropolitan location of jobs and workers. Municipality-level data for the entire Philadelphia metropolitan area are used to estimate a two equation partial adjustment model of firm and household location. Effective local property and income tax rates and spending data for three (exhaustive) service categories are included. The model is estimated for total employment and six sectors The findings imply that employment location is more sensitive to local government activities than is household location. Firms m most sectors react to both tax and spending policies. The effects on employment of local tax increases can be partially offset if the higher taxes supplement particular types of spending. However, differences across sectors imply that the net effect on total employment will be negative except in very special circumstances. Household behavior, on the other hand, is affected only by school spending. The findings also imply that models based on highly aggregated measures of employment or economic activity understate the speed of adjustment of the system, resulting in overstated estimates of long-run tax and spending effects.

Suggested Citation

  • Thomas F. Luce JR, 1994. "Local Taxes, Public Services, and the Intrametropolitan Location of Firms and Households," Public Finance Review, , vol. 22(2), pages 139-167, April.
    • Handle: RePEc:sae:pubfin:v:22:y:1994:i:2:p:139-167
    DOI: 10.1177/109114219402200201
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    3. Sung Hoon Kang & Mark Skidmore & Laura Reese, 2015. "The Effects of Changes in Property Tax Rates and School Spending on Residential and Business Property Value Growth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 300-333, June.
    4. Funderburg, Richard G. & Nixon, Hilary & Boarnet, Marlon G. & Ferguson, Gavin, 2010. "New highways and land use change: Results from a quasi-experimental research design," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(2), pages 76-98, February.
    5. Piyapong Jiwattanakulpaisarn & Robert B. Noland & Daniel J. Graham & John W. Polak, 2009. "Highway Infrastructure Investment And County Employment Growth: A Dynamic Panel Regression Analysis," Journal of Regional Science, Wiley Blackwell, vol. 49(2), pages 263-286, May.
    6. Wouter Vermeulen & Jos van Ommeren, 2004. "Interaction of Regional Population and Employment," Tinbergen Institute Discussion Papers 04-083/3, Tinbergen Institute.
    7. Piyapong Jiwattanakulpaisarn & Robert B. Noland & Daniel J. Graham & John W. Polak, 2009. "Highway infrastructure and state‐level employment: A causal spatial analysis," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 133-159, March.
    8. Albert Solé Ollé & Elisabet Viladecans Marsal, "undated". "Creación de empleo e impuestos municipales: evidencia empírica con datos de panel," Studies on the Spanish Economy 102, FEDEA.
    9. William H. Oakland & William A. Testa, 1995. "Does business development raise taxes?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 19(Mar), pages 22-32.
    10. Gerke J. Hoogstra & Jouke van Dijk & Raymond J. G. M. Florax, 2017. "Do jobs follow people or people follow jobs? A meta-analysis of Carlino–Mills studies," Spatial Economic Analysis, Taylor & Francis Journals, vol. 12(4), pages 357-378, October.
    11. Peterson, Steven K. & Jessup, Eric L., 2008. "Evaluating the Relationship Between Transportation Infrastructure and Economic Activity: Evidence from Washington State," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 47(2).
    12. Kim, Hyungtai & Ahn, Sanghoon & Ulfarsson, Gudmundur F., 2018. "Transportation infrastructure investment and the location of new manufacturing around South Korea's West Coast Expressway," Transport Policy, Elsevier, vol. 66(C), pages 146-154.
    13. Braid, Ralph M., 2009. "The employment effects of a central city's source-based wage tax or hybrid wage tax," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 512-521, July.
    14. Peterson, Steven K. & Jessup, Eric L., 2007. "Transportation Infrastructure And Economic Activity: Evidence Using Vector Autoregression, Error Correction And Directed Acyclic Graphs," 48th Annual Transportation Research Forum, Boston, Massachusetts, March 15-17, 2007 207917, Transportation Research Forum.
    15. Temple, Judy A., 1998. "Recent Clinton Urban Education Initiatives and the Role of School Quality in Metropolitan Finance," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(3), pages 517-529, September.
    16. Chakrabarti, Sandip, 2018. "Can highway development promote employment growth in India?," Transport Policy, Elsevier, vol. 69(C), pages 1-9.

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