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Federal Deductibility and Local Property Tax Rates

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  • Douglas Holtz-Eakin
  • Harvey S. Rosen

Abstract

In current discussions of tax reform in the United States, there is considerable controversy concerning the effects of allowing individuals to deduct state and local taxes when calculating their federal income tax liability. Recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes -- especially property taxes -- in local budgets. This paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation. Specifically, we find that if deductibility were eliminated, the mean property tax rate in our sample of 82 communities would fall by 0.00715 ($7.15 per thousand dollars of assessed property), or 21.1 percent of the mean tax rate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2427.

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Date of creation: Nov 1987
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Publication status: published as Journal of Urban Economics, Vol. 27, No. 3, pp. 269-284, (May 1990).
Handle: RePEc:nbr:nberwo:2427

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  1. Martin Feldstein & Gilbert Metcalf, 1986. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," NBER Working Papers 1791, National Bureau of Economic Research, Inc.
  2. Edwards, John H. Y., 1990. "Congestion function specification and the "publicness" of local public goods," Journal of Urban Economics, Elsevier, vol. 27(1), pages 80-96, January.
  3. Douglas Holtz-Eakin & Harvey S . Rosen, 1988. "Tax Deductibility and Municipal Budget Structure," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 107-136 National Bureau of Economic Research, Inc.
  4. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, American Economic Association, vol. 63(3), pages 280-96, June.
  5. Hettich, Walter & Winer, Stanley, 1984. "A positive model of tax structure," Journal of Public Economics, Elsevier, Elsevier, vol. 24(1), pages 67-87, June.
  6. Robert P. Inman, 1985. "Does Deductibility Influence Local Taxation?," NBER Working Papers 1714, National Bureau of Economic Research, Inc.
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Cited by:
  1. Lars-Erik Borge & Jørn Rattsø, 2001. "Income Distribution and Tax Structure: Microeconomic Test of the Meltzer-Richard Hypothesis," CESifo Working Paper Series 543, CESifo Group Munich.
  2. Anderson, Nathan B., 2011. "No relief: Tax prices and property tax burdens," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 41(6), pages 537-549.
  3. Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, Elsevier, vol. 48(4), pages 805-826, August.
  4. Robert P. Inman, 1989. "The Local Decision to Tax: Evidence from Large U.S. Cities," NBER Working Papers 2921, National Bureau of Economic Research, Inc.
  5. Galle, Brian, 2014. "The effect of national revenues on sub-national revenues evidence from the U.S," International Review of Law and Economics, Elsevier, Elsevier, vol. 37(C), pages 147-155.
  6. Nechyba, Thomas, 1996. "A computable general equilibrium model of intergovernmental aid," Journal of Public Economics, Elsevier, Elsevier, vol. 62(3), pages 363-397, November.
  7. Alberto Sole Olle, 1998. "The effects of tax deductibility on the mix of property taxes and use charges: an empirical analysis of the spanish case," Working Papers in Economics, Universitat de Barcelona. Espai de Recerca en Economia 41, Universitat de Barcelona. Espai de Recerca en Economia.
  8. Borge, Lars-Erik, 2000. "Charging for public services: the case of utilities in Norwegian local governments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 30(6), pages 703-718, December.

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