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Optimal Fiscal Policy for State and Local Government

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  • Richard J. Arnott
  • Ronald E. Grieson

Abstract

State and Local Government services are enjoyed by two groups, residents and non-residents: similarly, taxes are borne by both groups. This paper addresses the question: if state and local governments act so as to maximize their residents' welfare, and if they cannot distinguish between individual residents and non-residents but know the aggregate characteristics of the two groups, what set of taxes and public goods should they choose? Some of the results are: i) even when all goods are taxable and equity is ignored, the existence of non-resident consumption makes uniform taxation non-optimal; ii) in some non-trivial cases, whether a good should be taxed or subsidized is independent of its own-price elasticity; iii) central cities may be subsidized by suburban residents; and iv) the ability of state and local governments to redistribute is inversely proportional to the openness of the economy.

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 291.

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Length: 44
Date of creation: 1978
Date of revision:
Handle: RePEc:qed:wpaper:291

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Cited by:
  1. DE BORGER, Bruno & DUNKERLEY, Fay & PROOST, Stef, 2008. "Capacity cost structure, welfare and cost recovery: Are transport infrastructures with high fixed costs a handicap?," Working Papers 2008001, University of Antwerp, Faculty of Applied Economics.
  2. DE BORGER, Bruno & PROOST, Stef, 2012. "Transport policy competition between governments: A selective survey of the literature," Working Papers 2012014, University of Antwerp, Faculty of Applied Economics.
  3. Kim, Junghun, 1998. "Local property taxation with external land ownership," Journal of Public Economics, Elsevier, vol. 68(1), pages 113-135, April.
  4. DE BORGER, Bruno & PROOST, Stef, . "Vertical and horizontal tax competition in the transport sector," Working Papers 2004022, University of Antwerp, Faculty of Applied Economics.
  5. De Borger, B. & Proost, S. & Van Dender, K., 2005. "Congestion and tax competition in a parallel network," European Economic Review, Elsevier, vol. 49(8), pages 2013-2040, November.
  6. Stef Proost & Akshaya Sen, 2005. "Urban Transport Pricing Reform With Two Levels Of Government," Energy, Transport and Environment Working Papers Series ete0503, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.

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