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Local Revenue Hills: Evidence from Four U.S. Cities

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  • Andrew F. Haughwout
  • Robert P. Inman
  • Steven Craig
  • Thomas Luce

Abstract

We provide estimates of the impact and long-run elasticities of tax base with respect to tax rates for four large U.S. cities: Houston (property taxation), Minneapolis (property taxation), New York City (property, general sales, and income taxation), and Philadelphia (property, gross receipts, and wage taxation). Results suggest that three of our cities are near the peaks of their revenue hills; Minneapolis is the exception. A significant negative effect of a balanced budget increase in city property tax rates on city property tax base is interpreted as a capitalization effect and suggests that marginal increases in tax-financed city spending do not provide positive net benefits to property owners. Estimates of the effects of taxes on city employment levels for New York City and Philadelphia -- the two cities for which employment series are available -- show the local income and wage tax rates have significant negative effects on city employment levels. Cuts in these tax rates are likely to be an economically cost effective way to increase city jobs.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9686.

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Date of creation: May 2003
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Publication status: published as Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2004. "Local Revenue Hills: Evidence from Four U.S. Cities," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 570-585, 06.
Handle: RePEc:nbr:nberwo:9686

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Cited by:
  1. IREGUI, Ana María & Ligia Melo & Jorge Ramos, 2005. "El impuesto predial en Colombia: factores explicativos del recaudo," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO.
  2. PERALTA, Susana, 2004. "Political support for tax decentralisation," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2004024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Edward L. Glaeser & Matthew G. Resseger & Kristina Tobio, 2008. "Urban Inequality," NBER Working Papers 14419, National Bureau of Economic Research, Inc.
  4. Jofre-Monseny, Jordi & Solé-Ollé, Albert, 2012. "Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of employment location to local taxes," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 42(1-2), pages 257-268.
  5. Skidmore, Mark & Reese, Laura & Kang, Sung Hoon, 2012. "Regional analysis of property taxation, education finance reform, and property value growth," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 42(1-2), pages 351-363.
  6. Dahlby, Bev, 2009. "The Marginal Cost of Public Funds and the Flypaper Effect," Working Papers 2009-17, University of Alberta, Department of Economics, revised 01 Jun 2010.
  7. Fabio Sánchez Torres & Irina España Eljaiek & Jannet Zenteno, 2012. "Sub-national Revenue Mobilization in Latin American and Caribbean Countries: The Case of Colombia," IDB Publications 78579, Inter-American Development Bank.
  8. Robert Inman, 2005. "Commentary on "The geography of entrepreneurship in the New York metropolitan area"," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 55-59.
  9. Edward L. Glaeser, 2012. "Urban Public Finance," NBER Working Papers 18244, National Bureau of Economic Research, Inc.
  10. 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.
  11. Marius Brülhart & Sam Bucovetsky & Kurt Schmidheiny, 2014. "Taxes in Cities," CESifo Working Paper Series 4951, CESifo Group Munich.
  12. Stone, Joe & Bania, Neil, 2009. "Brains, drains, and roads, growth hills: complementarity between public education and infrastructure in a half-century panel of states," MPRA Paper 16173, University Library of Munich, Germany.
  13. Stephen L. Ross, 2005. "Commentary on "Exogenous shocks and the dynamics of city growth: evidence from New York"," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 75-77.
  14. Jesse Edgerton & Andrew F. Haughwout & Rae Rosen, 2004. "Revenue implications of New York City's tax system," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 10(Apr).
  15. Edward Glaeser, 2013. "A Review of Enrico Moretti's The New Geography of Jobs," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 825-37, September.
  16. Sung Kang & Laura Reese & Mark Skidmore, 2012. "The Effects of Changes in Property Tax Rates and School Spending on Residential and Business Property Value Growth," CESifo Working Paper Series 3899, CESifo Group Munich.
  17. Robert Inman, 2005. "Financing Cities," NBER Working Papers 11203, National Bureau of Economic Research, Inc.
  18. Benjaming Dachis & Adam Found & Peter Tomlinson, 2013. "What Gets Measured Gets Managed: The Economic Burden of Business Property Taxes," e-briefs, C.D. Howe Institute 166, C.D. Howe Institute.
  19. Timothy J. Bartik, 2004. "Incentive Solutions," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 04-99, W.E. Upjohn Institute for Employment Research.

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