Advanced Search
MyIDEAS: Login to save this article or follow this journal

Tax Mix Corners and Other Kinks

Contents:

Author Info

  • Federico Revelli

Abstract

This paper models the local tax mix determination process in the presence of statewide fiscal limitations—the decentralized government finance archetype—and shows how excess sensitivity of local public spending to grants (the conventionally and somewhat misleadingly termed “flypaper effect”) arises in the constrained tax mix irrespective of whether lower or upper limits bind and how it cannot, in general, be taken as a symptom of local government overspending. An empirical application to Italian province panel data provides consistent evidence of the role of corner solutions produced by two-sided tax limits in explaining the sensitivity of local public expenditures to grants.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.jstor.org/stable/pdfplus/10.1086/671479
Download Restriction: Access to the online full text or PDF requires a subscription.

File URL: http://www.jstor.org/stable/full/10.1086/671479
Download Restriction: Access to the online full text or PDF requires a subscription.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 56 (2013)
Issue (Month): 3 ()
Pages: 741 - 776

as in new window
Handle: RePEc:ucp:jlawec:doi:10.1086/671479

Contact details of provider:
Web page: http://www.journals.uchicago.edu/JLE/

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  2. Gordon, Nora, 2004. "Do federal grants boost school spending? Evidence from Title I," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1771-1792, August.
  3. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  4. T. Jappelli & J-S Pischke & N.S. Souleles, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," Working papers 95-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Stine, William F., 1994. "Is Local Government Revenue Response to Federal Aid Symmetrical? Evidence from Pennsylvania County Governments in a Era of Retrenchment," National Tax Journal, National Tax Association, vol. 47(4), pages 799-816, December.
  6. A. Abigail Payne, 2009. "Does Government Funding Change Behavior? An Empirical Analysis of Crowd Out," NBER Chapters, in: Tax Policy and the Economy, Volume 23, pages 159-184 National Bureau of Economic Research, Inc.
  7. repec:fth:pennfi:69 is not listed on IDEAS
  8. Lars-Erik Borge & Per Tovmo, 2009. "Myopic or Constrained by Balanced-Budget Rules? The Intertemporal Spending Behavior of Norwegian Local Governments," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 200-219, June.
  9. Heien, Dale & Wessells, Cathy Roheim, 1990. "Demand Systems Estimation with Microdata: A Censored Regression Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 365-71, July.
  10. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
  11. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
  12. Justin H. Phillips, 2010. "An Institutional Explanation for the Stickiness of Federal Grants," Journal of Law, Economics and Organization, Oxford University Press, vol. 26(2), pages 243-264.
  13. Byron Lutz, 2010. "Taxation with Representation: Intergovernmental Grants in a Plebiscite Democracy," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 316-332, May.
  14. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  15. Charlier, Erwin & Melenberg, Bertrand & van Soest, Arthur, 2001. "An analysis of housing expenditure using semiparametric models and panel data," Journal of Econometrics, Elsevier, vol. 101(1), pages 71-107, March.
  16. Douglas Sutherland & Robert Price & Isabelle Joumard, 2005. "Sub-central government fiscal rules," OECD Economic Studies, OECD Publishing, vol. 2005(2), pages 141-181.
  17. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-12, September.
  18. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  19. Anderson, Nathan B., 2006. "Property Tax Limitations: An Interpretative Review," National Tax Journal, National Tax Association, vol. 59(3), pages 685-94, September.
  20. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
  21. Gamkhar, Shama & Oates, Wallace E., 1996. "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings," National Tax Journal, National Tax Association, vol. 49(4), pages 501-12, December.
  22. Yen, Steven T. & Lin, Biing-Hwan, 2004. "A Sample Selection Approach To Censored Demand Systems," 2004 Annual meeting, August 1-4, Denver, CO 20082, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  23. Nechyba, Thomas J, 1997. "Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 351-84, April.
  24. Isabelle Joumard & Per Mathis Kongsrud, 2003. "Fiscal Relations across Government Levels," OECD Economics Department Working Papers 375, OECD Publishing.
  25. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 1999. "Investment behavior, observable expectations, and internal funds," Finance and Economics Discussion Series 1999-27, Board of Governors of the Federal Reserve System (U.S.).
  26. Lawrence Kenny & Stanley Winer, 2006. "Tax Systems in the World: An Empirical Investigation into the Importance of Tax Bases, Administration Costs, Scale and Political Regime," International Tax and Public Finance, Springer, vol. 13(2), pages 181-215, May.
  27. Hettich, Walter & Winer, Stanley, 1984. "A positive model of tax structure," Journal of Public Economics, Elsevier, vol. 24(1), pages 67-87, June.
  28. J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
  29. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  30. Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
  31. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
  32. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
  33. Christian Dustmann & Mar�a Engracia Rochina-Barrachina, 2007. "Selection correction in panel data models: An application to the estimation of females' wage equations," Econometrics Journal, Royal Economic Society, vol. 10(2), pages 263-293, 07.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Revelli Federico, 2012. "Business taxation and economic performance in hierarchical government structures," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201204, University of Turin.
  2. Revelli, Federico, 2013. "Tax Limits and Local Democracy," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201336, University of Turin.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:doi:10.1086/671479. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.