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Taxation with Representation: Intergovernmental Grants in a Plebiscite Democracy

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  • Byron Lutz

    (Board of Governors of the Federal Reserve)

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    Abstract

    Economic theory suggests that intergovernmental grants are equivalent to private income. A large empirical literature, however, contradicts this prediction. A school finance reform in New Hampshire, where local public goods decisions are made by a form of direct democracy, provides an unusually compelling test of the theory. The results, which suggest that approximately ninety cents per grant dollar are spent on tax reduction, provide support for equivalence. The paper's findings have important policy implications for the financing of local public goods in general and for school finance reform in particular. .

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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.2010.12258
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    Bibliographic Info

    Article provided by MIT Press in its journal The Review of Economics and Statistics.

    Volume (Year): 92 (2010)
    Issue (Month): 2 (May)
    Pages: 316-332

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    Handle: RePEc:tpr:restat:v:92:y:2010:i:2:p:316-332

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    Web page: http://mitpress.mit.edu/journals/

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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    Cited by:
    1. Federico Revelli, 2010. "Tax mix corners and other kinks," Working Papers 2010/50, Institut d'Economia de Barcelona (IEB).
    2. Sylvain Leduc & Daniel Wilson, 2012. "Roads to prosperity or bridges to nowhere? theory and evidence on the impact of public infrastructure investment," Working Paper Series 2012-04, Federal Reserve Bank of San Francisco.
    3. Leah Brooks & Justin Phillips & Maxim Sinitsyn, 2011. "The Cabals of a Few or the Confusion of a Multitude: The Institutional Trade-Off between Representation and Governance," American Economic Journal: Economic Policy, American Economic Association, vol. 3(1), pages 1-24, February.

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