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

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Author Info

  • Andrew Haughwout

    ()
    (Federal Reserve Bank of New York)

  • Robert Inman

    ()
    (Department of Finance, Wharton School, University of Pennsylvania)

  • Steven G. Craig

    ()
    (Department of Economics, University of Houston)

  • Thomas Luce

    ()
    (Ameregis - Research, Minneapolis)

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 base is interpreted as a capitalization effect and suggests that marginal increases in 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.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 03-012.

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Length: 37 pages
Date of creation: 01 Feb 2000
Date of revision: 01 Mar 2003
Handle: RePEc:pen:papers:03-012

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Keywords: Local Taxation; City Fiscal Policy; Urban Economic Development;

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References

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  1. Robert Inman, 2003. "Should Philadelphia's suburbs help their central city?," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 24-26.
  2. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Chains of Ownership, Regional Tax Competition, and Foreign Direct Investment," NBER Working Papers 9224, National Bureau of Economic Research, Inc.
  3. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  4. Haughwout, Andrew F. & Inman, Robert P., 2001. "Fiscal policies in open cities with firms and households," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 147-180, April.
  5. Mark, Stephen T. & McGuire, Therese J. & Papke, Leslie E., 2000. "The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 105-24, March.
  6. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
  7. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, December.
  8. Feld, Lars P. & Kirchgassner, Gebhard, 2003. "The impact of corporate and personal income taxes on the location of firms and on employment: some panel evidence for the Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(1), pages 129-155, January.
  9. Haughwout, Andrew F., 1998. "Aggregate Production Functions, Interregional Equilibrium, and the Measurement of Infrastructure Productivity," Journal of Urban Economics, Elsevier, vol. 44(2), pages 216-227, September.
  10. Julie Berry Cullen & Steven D. Levitt, 1999. "Crime, Urban Flight, And The Consequences For Cities," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 159-169, May.
  11. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, vol. 85(2), pages 378-83, May.
  12. James R. Hines Jr., 1993. "Altered States: Taxes and the Location of Foreign Direct Investment in America," NBER Working Papers 4397, National Bureau of Economic Research, Inc.
  13. Steven D. Levitt, 1995. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Policeon Crime," NBER Working Papers 4991, National Bureau of Economic Research, Inc.
  14. Austan Goolsbee & Edward L Maydew, 1998. "Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment," NBER Working Papers 6614, National Bureau of Economic Research, Inc.
  15. Edward L. Glaeser & Matthew E. Kahn, 1999. "From John Lindsay to Rudy Giuliani: the decline of the local safety net?," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 117-132.
  16. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
  17. Gyourko, Joseph & Tracy, Joseph, 1989. "Local public sector rent-seeking and its impact on local land values," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 493-516, August.
  18. Brueckner, Jan K., 1982. "A test for allocative efficiency in the local public sector," Journal of Public Economics, Elsevier, vol. 19(3), pages 311-331, December.
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Citations

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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. 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.
  3. 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.
  4. 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.
  5. 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.
  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. 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.
  8. 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.
  9. Edward L. Glaeser & Matthew G. Resseger & Kristina Tobio, 2008. "Urban Inequality," NBER Working Papers 14419, National Bureau of Economic Research, Inc.
  10. Susana Peralta, 2007. "Political Support for Tax Decentralization," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(6), pages 1013-1030, December.
  11. 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.
  12. Robert Inman, 2005. "Financing Cities," NBER Working Papers 11203, National Bureau of Economic Research, Inc.
  13. 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.
  14. Timothy J. Bartik, 2004. "Incentive Solutions," Upjohn Working Papers and Journal Articles 04-99, W.E. Upjohn Institute for Employment Research.
  15. Edward L. Glaeser, 2012. "Urban Public Finance," NBER Working Papers 18244, National Bureau of Economic Research, Inc.
  16. 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.
  17. 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).
  18. 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.

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