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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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  1. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
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Cited by:
  1. 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, vol. 42(1-2), pages 351-363.
  2. Robert Inman, 2005. "Commentary on "The geography of entrepreneurship in the New York metropolitan area"," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 55-59.
  3. 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, vol. 42(1-2), pages 257-268.
  4. 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.
  5. 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.
  6. 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, issue Dec, pages 75-77.
  7. PERALTA, Susana, 2004. "Political support for tax decentralisation," CORE Discussion Papers 2004024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. 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, vol. 10(Apr).
  9. 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.
  10. Bev Dahlby, 2011. "The marginal cost of public funds and the flypaper effect," International Tax and Public Finance, Springer, vol. 18(3), pages 304-321, June.
  11. 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.
  12. Benjaming Dachis & Adam Found & Peter Tomlinson, 2013. "What Gets Measured Gets Managed: The Economic Burden of Business Property Taxes," e-briefs 166, C.D. Howe Institute.
  13. Edward L. Glaeser & Matthew G. Resseger & Kristina Tobio, 2008. "Urban Inequality," NBER Working Papers 14419, National Bureau of Economic Research, Inc.
  14. Robert Inman, 2005. "Financing Cities," NBER Working Papers 11203, National Bureau of Economic Research, Inc.
  15. 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.
  16. Ana María Iregui B. & Ligia Melo B. & Jorge Ramos F., . "El Impuesto Predial en Colombia: Factores Explicativos del Recaudo," Borradores de Economia 319, Banco de la Republica de Colombia.
  17. Timothy J. Bartik, 2004. "Incentive Solutions," Upjohn Working Papers and Journal Articles 04-99, W.E. Upjohn Institute for Employment Research.
  18. Edward L. Glaeser, 2012. "Urban Public Finance," NBER Working Papers 18244, National Bureau of Economic Research, Inc.

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