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On the political economy of tax limits

Author

Listed:
  • Stephen Calabrese

    (Carnegie Mellon University)

  • Dennis Epple

    (Carnegie Mellon University)

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.

Suggested Citation

  • Stephen Calabrese & Dennis Epple, 2010. "On the political economy of tax limits," Working Papers 2010/14, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-14
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    References listed on IDEAS

    as
    1. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
    2. O'Sullivan,Arthur & Sexton,Terri A. & Sheffrin,Steven M., 2007. "Property Taxes and Tax Revolts," Cambridge Books, Cambridge University Press, number 9780521035996.
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    6. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, vol. 24(3), pages 281-308, August.
    7. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-242, May.
    8. Fischel, William A., 1989. "Did Serrano Cause Proposition 13?," National Tax Journal, National Tax Association, vol. 42(4), pages 465-73, December.
    9. Dennis Epple & Thomas Romer & Holger Sieg, 2001. "Interjurisdictional Sorting and Majority Rule: An Empirical Analysis," Econometrica, Econometric Society, vol. 69(6), pages 1437-1465, November.
    10. 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.
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    13. Goodspeed, Timothy J., 1989. "A re-examination of the use of ability to pay taxes by local governments," Journal of Public Economics, Elsevier, vol. 38(3), pages 319-342, April.
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    16. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, vol. 85(2), pages 378-383, May.
    17. Stephen M. Calabrese, 2001. "Local Redistribution Financed by Income Tax," Public Finance Review, , vol. 29(4), pages 259-303, July.
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    Citations

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    Cited by:

    1. Federico Revelli, 2013. "Tax Mix Corners and Other Kinks," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 741-776.
    2. Federico Revelli, 2012. "Business taxation and economic performance in hierarchical government structures," Working Papers 2012/12, Institut d'Economia de Barcelona (IEB).
    3. Stephen M. Calabrese & Dennis N. Epple & Richard E. Romano, 2012. "Inefficiencies from Metropolitan Political and Fiscal Decentralization: Failures of Tiebout Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 1081-1111.
    4. Ron Cheung, 2005. "The Effect of Property Tax Limitations on Residential Private Governments," Working Papers wp2005_05_01, Department of Economics, Florida State University.
    5. 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.
    6. Stephen M. Calabrese, 2007. "Majority Voting over Publicly Provided Goods, Redistribution, and Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 319-334, April.

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    More about this item

    Keywords

    Tax limits; redistribution; public goods; property tax; income tax; head tax;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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