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Spending within limits: Evidence from municipal fiscal restraints

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  • Leah Brooks
  • Yosh Halberstam
  • Justin Phillips

Abstract

This paper studies the role of a constitutional rule new to the literature: a limit placed by a city on its own ability to tax or spend. We find that such a limit exists in at least 1 in 8 cities, and that limits are not adopted in response to high levels of or variability in taxation. After limit adoption, municipal revenue growth declines by 16 to 22 percent. Our results suggest that institutional constraints may be effective when representative government falls short of the median voter ideal.

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File URL: http://www.federalreserve.gov/pubs/feds/2012/201252/201252pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2012-52.

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Date of creation: 2012
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Handle: RePEc:fip:fedgfe:2012-52

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  1. Downes, Thomas A. & Dye, Richard F. & McGuire, Therese J., 1998. "Do Limits Matter? Evidence on the Effects of Tax Limitations on Student Performance," Journal of Urban Economics, Elsevier, vol. 43(3), pages 401-417, May.
  2. Downes, Thomas A. & Figlio, David N., 1999. "Do Tax and Expenditure Limits Provide a Free Lunch? Evidence on the Link Between Limits and Public Sector Service Quality," National Tax Journal, National Tax Association, vol. 52(n. 1), pages 113-28, March.
  3. James Alm & Mark Skidmore, 1999. "Why do Tax and Expenditure Limitations Pass in State Elections?," Public Finance Review, , vol. 27(5), pages 481-510, September.
  4. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
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