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Does Deductibility Influence Local Taxation?

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Robert P. Inman
Abstract

Recent proposals to reform the U.S. tax code all contain significant reforms of the cufrent provision allowing for the deductibility of state and local taxes.This paper examines the effect of deductibility reform on the revenue decisions of the largest U.S. cities. The analysis of eight alternative reforms concludes:(1) total taxes change very little in the long-run, falling at most by 13% and, for many cities, even rising slightly; (2) fees and license revenue (predominantly a tax on firms) generally fall, in some cases by 30% or more; (3) the net effect on total revenues (tax plus fees) is generally small, never declininq by more than 12% even with full loss of deductibility; and (4) policies to offset city revenue losses are effective in neutralizing the negative effects of deductibility reform.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1714.

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Date of creation: Oct 1985
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Handle: RePEc:nbr:nberwo:1714

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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. Grieson, Ronald E., 1974. "The economics of property taxes and land values: The elasticity of supply of structures," Journal of Urban Economics, Elsevier, vol. 1(4), pages 367-381, October. [Downloadable!] (restricted)
  2. John Gruenstein, 1980. "Jobs in the city: can Philadelphia afford to raise taxes?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-11. [Downloadable!]
  3. Haurin, Donald R., 1981. "Local income taxation in an urban area," Journal of Urban Economics, Elsevier, vol. 10(3), pages 323-337, November. [Downloadable!] (restricted)
  4. Hettich, Walter & Winer, Stanley, 1984. "A positive model of tax structure," Journal of Public Economics, Elsevier, vol. 24(1), pages 67-87, June. [Downloadable!] (restricted)
  5. 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)
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  1. Douglas Holtz-Eakin & Harvey S. Rosen, 1987. "Tax Deductibility and Municipal Budget Structure," NBER Working Papers 2224, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Douglas Holtz-Eakin & Harvey S. Rosen, 1990. "Federal Deductibility and Local Property Tax Rates," NBER Working Papers 2427, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Daniel R. Feenberg & Harvey S. Rosen, 1986. "The Deductibility of State and Local Taxes: Impact Effects by State andIncome Class," NBER Working Papers 1768, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Robert P. Inman, 1990. "The Local Decision to Tax: Evidence from Large U.S. Cities," NBER Working Papers 2921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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