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Fiscal Policies in Open Cities with Firms and Households

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  • Andrew Haughwout
  • Robert P. Inman

Abstract

With the renewed interest in cities as economic centers comes a need to understand how local public services and local taxes are likely to affect city economic performance. This paper provides an equilibrium model of an open city economy with mobile firms and resident workers. Given household preferences and firm technologies and an exogenous configuration of city tax rates and national grants and fiscal mandates, the model calculates equilibrium values for firm production and input use, household consumption and housing choices, city wages, rents, and population, and finally, local tax bases, revenues, and public goods provision. The model is calibrated to the Philadelphia economy for FY 1998; model predictions are compared to recent econometric estimates of the effects of city fiscal policy on the Philadelphia private economy. We then explore two important questions for the city's fiscal future: What are the economic and fiscal consequences of raising city tax rates? Can the city shoulder a rising burden of local welfare payments and remain a viable economic center in the long-run? We find the city to be near the top of its total revenue hill and incapable of bearing significant increases in local responsibility for welfare transfers.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7823.

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Date of creation: Aug 2000
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Publication status: published as Haughwout, Andrew and Robert P. Inman. "Fiscal Policies In Open Cities With Firms And Households," Regional Science and Urban Economics, 2001, v31(2-3,Apr), 147-180.
Handle: RePEc:nbr:nberwo:7823

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  1. MINTZ, Jack & TULKENS, Henry, . "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -693, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Kalin Nikolov & Alex Michaelides & Nobuhiro Kiyotaki, 2007. "From Shirtsleeves to Shirtsleeves in a Long Lifetime," 2007 Meeting Papers, Society for Economic Dynamics 357, Society for Economic Dynamics.
  2. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43, pages 255-296, 03.
  3. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers, Central Bank of Cyprus 2010-5, Central Bank of Cyprus.
  4. Gerald Carlino & Robert Inman, 2013. "Local deficits and local jobs: can U.S. statess stabilize their own economies?," Working Papers 13-11, Federal Reserve Bank of Philadelphia.
  5. Andrew F. Haughwout & Robert P. Inman & Steven Craig & Thomas Luce, 2003. "Local Revenue Hills: Evidence from Four U.S. Cities," NBER Working Papers 9686, National Bureau of Economic Research, Inc.
  6. Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 2004. "Contribution to Productivity or Pork Barrel?: The Two Faces of Infrastructure Investment," Discussion Papers of DIW Berlin 458, DIW Berlin, German Institute for Economic Research.
  7. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2007. " Winners and Losers in Housing Markets," CDMA Conference Paper Series, Centre for Dynamic Macroeconomic Analysis 0705, Centre for Dynamic Macroeconomic Analysis.
  8. Clément Carbonnier, 2008. "Fiscal competition between decentralized jurisdictions, theoretical and empirical evidence," THEMA Working Papers 2008-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  9. Robert P. Inman, 2010. "States in Fiscal Distress," NBER Working Papers 16086, National Bureau of Economic Research, Inc.
  10. Robert Inman, 2005. "Financing Cities," NBER Working Papers 11203, National Bureau of Economic Research, Inc.
  11. Rappaport, Jordan, 2008. "Consumption amenities and city population density," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 38(6), pages 533-552, November.
  12. Jordan Rappaport, 2006. "Consumption amenities and city crowdedness," Research Working Paper, Federal Reserve Bank of Kansas City RWP 06-10, Federal Reserve Bank of Kansas City.

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