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Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion

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Author Info
Nechyba, Thomas J

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Abstract

This paper addresses two long-standing positive questions in public finance: why is the property tax, despite widespread popular complaints against its fairness, the almost exclusive tax instrument used by local governments and why do we consistently observe higher levels of governments (states) undermining local property tax systems through income tax-funded grants and state-imposed caps on local property tax rates? Results indicate that setting local income tax rates to zero is a dominant strategy for communities that face competition from neighboring governments and that only through higher government intervention can local income taxes be introduced. Copyright 1997 by the University of Chicago.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 105 (1997)
Issue (Month): 2 (April)
Pages: 351-84
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Handle: RePEc:ucp:jpolec:v:105:y:1997:i:2:p:351-84

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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.:
  1. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November. [Downloadable!] (restricted)
  2. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
  3. Thomas. J. Nechyba, 1997. "Existence of equilibrium and stratification in local and hierarchical Tiebout economies with property taxes and voting," Economic Theory, Springer, vol. 10(2), pages 277-304. [Downloadable!] (restricted)
    Other versions:
  4. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August. [Downloadable!] (restricted)
  5. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March. [Downloadable!] (restricted)
  6. Pogodzinski, J. M. & Sjoquist, David L., 1993. "Alternative tax regimes in a local public good economy," Journal of Public Economics, Elsevier, vol. 50(1), pages 115-141, January. [Downloadable!] (restricted)
  7. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September. [Downloadable!] (restricted)
  8. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November. [Downloadable!] (restricted)
  9. Ioannides, Yannis M., 1987. "Residential mobility and housing tenure choice," Regional Science and Urban Economics, Elsevier, vol. 17(2), pages 265-287. [Downloadable!] (restricted)
  10. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February. [Downloadable!] (restricted)
  11. Wildasin, David, 1993. "Fiscal competition and interindustry trade," Regional Science and Urban Economics, Elsevier, vol. 23(3), pages 369-399, July. [Downloadable!] (restricted)
  12. Coates, Dennis, 1993. "Property tax competition in a repeated game," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 111-119, March. [Downloadable!] (restricted)
  13. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  14. Krelove, R., 1993. "The persistence and inefficiency of property tax finance of local public expenditures," Journal of Public Economics, Elsevier, vol. 51(3), pages 415-435, July. [Downloadable!] (restricted)
  15. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December. [Downloadable!] (restricted)
  16. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May. [Downloadable!] (restricted)
  17. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. John Spry, 2005. "The Effects of Fiscal Competition on Local Property and Income Tax Reliance," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 5(1), pages 1054-1054. [Downloadable!] (restricted)
  2. Dennis Epple & Thomas Romer & Holger Sieg, 1999. "The Tiebout Hypothesis and Majority Rule: An Empirical Analysis," NBER Working Papers 6977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March. [Downloadable!] (restricted)
  4. Calabrese, Stephen & Epple, Dennis & Romer, Thomas & Sieg, Holger, 2005. "Local Public Good Provision: Voting, Peer Effects, and Mobility," Papers 10-04-2005, Princeton University, Research Program in Political Economy. [Downloadable!]
  5. Nathaniel Baum-Snow & Byron Lutz, 2008. "School desegregation, school choice and changes in residential location patterns by race," Finance and Economics Discussion Series 2008-57, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Holger Sieg & V. Kerry Smith & Spencer Banzhaf & Randy Walsh, 2000. "Using Locational Equilibrium Models to Evaluate Housing Price Indexes," NBER Working Papers 7934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Thomas J. Nechyba, 2001. "Centralization, Fiscal Federalism and Private School Attendance," NBER Working Papers 8355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Francisco Martínez Mora, 2004. "The impact of fiscal decentralization on income segregation," Economic Working Papers at Centro de Estudios Andaluces E2004/68, Centro de Estudios Andaluces. [Downloadable!]
  9. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March. [Downloadable!]
  10. Thomas J. Nechyba, 1996. "Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting," NBER Technical Working Papers 0190, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Thomas J. Nechyba & Robert P. Strauss, 1997. "Community Choice and Local Public Services: A Discrete Choice Approach," NBER Working Papers 5966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Ken Sanford & William Hoyt, 2009. "Is the Grass Greener on the Other Side of the River?: The Choice of Where to Work and Where to Live for Movers," Working Papers 2009-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  13. Joshua Hall, 2006. "Fiscal competition and tax instrument choice: the role of income inequality," Economics Bulletin, Economics Bulletin, vol. 8(12), pages 1-8. [Downloadable!]
  14. Stanley L. Winer & Walter Hettich, 2002. "The Political Economy of Taxation: Positive and Normative Analysis when Collective Choice Matters," Carleton Economic Papers 02-11, Carleton University, Department of Economics. [Downloadable!]
  15. David J. Vanness, 2003. "A structural econometric model of family valuation and choice of employer-sponsored health insurance in the United States," Health Economics, John Wiley & Sons, Ltd., vol. 12(9), pages 771-790. [Downloadable!]
  16. Daniel Aaronson, 1998. "The effect of school finance reform on population heterogeneity," Working Paper Series WP-98-11, Federal Reserve Bank of Chicago. [Downloadable!]
  17. Thomas Nechyba, 1996. "Fiscal federalism and local public finance: A computable general equilibrium (CGE) framework," International Tax and Public Finance, Springer, vol. 3(2), pages 215-231, May. [Downloadable!] (restricted)
  18. Thomas J. Nechyba, 1999. "A Model of Multiple Districts and Private Schools: The Role of Mobility, Targeting, and Private School Vouchers," NBER Working Papers 7239, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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