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A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures

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Author Info
Roger H. Gordon
Joel Slemrod

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Abstract

In the United States, local government expenditures are heavily subsidized through a variety of sources. This paper explores theoretically and then simulates empirically the effects of eliminating either of two federal subsidies encouraging local government expenditures: (1) income tax deductibility of local tax payments, and (2) the tax exempt status of interest on municipal bonds.We find that eliminating the deductibility of local taxes raises the utility of all income groups, and of home owners as well as of renters.Making interest on municipal bonds taxable, however, substantially hurts the very rich, who lose a tax shelter, and may hurt the very poor, who pay more for municipal services. While most people gain, the net gain is very small.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1080.

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Date of creation: Feb 1983
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Publication status: published as Gordon, Roger H. and Joel Slemrod. "A General Equilibrium Simulation Studyof Subsidies to Municipal Exoenditures." The Journal of Finance, Vol. 38, No. 2, (May 1983), pp. 585-594.
Handle: RePEc:nbr:nberwo:1080

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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. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December. [Downloadable!] (restricted)
  2. McGuire, Martin, 1974. "Group Segregation and Optimal Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 112-32, Jan.-Feb.. [Downloadable!] (restricted)
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(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. James Berkovec & Don Fullerton, 1989. "The General Equilibrium Effects of Inflation on Housing Consumption and Investment," NBER Working Papers 2826, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. James M. Poterba, 1986. "Expected Future Tax Policy and Tax-Exempt Bond Yields," NBER Working Papers 1469, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Roger H. Gordon & Joel Slemrod, 1985. "An Empirical Examination of Municipal Financial Policy," NBER Working Papers 1599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Charles R. Hulten & Robert M. Schwab, 1987. "Income Originating in the State and Local Sector," NBER Working Papers 2314, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Joel Slemrod, 1986. "The Impact of Tax Reform on Households," NBER Working Papers 1765, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Joel Slemrod, 1984. "A General Equilibrium Model of Taxation That Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax," NBER Working Papers 1461, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. James Berkovec & Don Fullerton, 1993. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," NBER Working Papers 3505, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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