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On the political economy of tax limits

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  • Stephen Calabrese

    ()
    (Carnegie Mellon University)

  • Dennis Epple

    ()
    (Carnegie Mellon University)

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    Abstract

    We study the political economy of state limitations on the taxing powers of local governments, investigating the effects of such restriction on housing markets, community composition, and types of taxes and expenditures undertaken by local governments. We characterize equilibrium when voters choose values of multiple policy (tax and expenditure) instruments, finding that tax limitations have very substantial effects on housing prices and the composition of communities. Political support for tax limits comes from suburban voters and from a subset of central-city voters. Support for tax limits come even from residents of communities that are not constrained by the limits.

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    Bibliographic Info

    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/14.

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    Length: 54 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:ieb:wpaper:2010/4/doc2010-14

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    Related research

    Keywords: Tax limits; redistribution; public goods; property tax; income tax; head tax;

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    1. Fischel, William A., 1989. "Did Serrano Cause Proposition 13?," National Tax Journal, National Tax Association, vol. 42(4), pages 465-73, December.
    2. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(4), pages 645-681, August.
    3. Dennis Epple & Richard Romano, 2000. "Neighborhood Schools, Choice, and the Distribution of Educational Benefits," NBER Working Papers 7850, National Bureau of Economic Research, Inc.
    4. Stephen M. Calabrese, 2001. "Local Redistribution Financed by Income Tax," Public Finance Review, , , vol. 29(4), pages 259-303, July.
    5. Goodspeed, Timothy J., 1989. "A re-examination of the use of ability to pay taxes by local governments," Journal of Public Economics, Elsevier, Elsevier, vol. 38(3), pages 319-342, April.
    6. Ellickson, Bryan, 1971. "Jurisdictional Fragmentation and Residential Choice," American Economic Review, American Economic Association, American Economic Association, vol. 61(2), pages 334-39, May.
    7. 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, University of Chicago Press, vol. 105(2), pages 351-84, April.
    8. Bucovetsky, Sam, 1991. "Choosing tax rates and public expenditure levels using majority rule," Journal of Public Economics, Elsevier, Elsevier, vol. 46(1), pages 113-131, October.
    9. Zodrow, George, 1984. "The incidence of metropolitan property tax base sharing and rate equalization," Journal of Urban Economics, Elsevier, vol. 15(2), pages 210-229, March.
    10. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 135-64, February.
    11. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 378-83, May.
    12. Henderson, J. Vernon, 1994. "Community choice of revenue instruments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 24(2), pages 159-183, April.
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    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, University of Turin 201204, University of Turin.

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