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Does Fiscal Decentralization Constrain Leviathan? Evidence from Local Property Tax Competition

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  • George R. Crowley

    (Department of Economics, West Virginia University)

  • Russell S. Sobel

    (Department of Economics, West Virginia University)

Abstract

This paper reexamines whether fiscal decentralization constrains Leviathan government. Using panel data for Pennsylvania, we compare actual property tax rates to the Leviathan revenue-maximizing rates for municipalities, school districts, and counties. Using spatial econometric methods we also estimate the degree of spatial dependence at the three levels of local government. We find that fiscal decentralization results in stronger intergovernmental competition and lower tax rates. We also find evidence of collusion among school districts that exhibit high interdependence but also high tax rates. This calls into question the current literature's blind use of spatial dependence as a measure of intergovernmental competition.

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File URL: http://www.be.wvu.edu/phd_economics/pdf/10-16.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-16.

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Length: 45 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:wvu:wpaper:10-16

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Web page: http://www.be.wvu.edu/phd_economics/
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Keywords: Fiscal decentralization; Leviathan; Tax competition;

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  1. Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
  2. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March.
  3. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
  4. G. Gulsun Arikan, 2004. "Fiscal Decentralization: A Remedy for Corruption?," International Tax and Public Finance, Springer, vol. 11(2), pages 175-195, 03.
  5. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
  6. Philip J. Grossman, 1989. "Fiscal Decentralization and Government Size: An Extension," Development Research Unit Working Paper Series archive-05, Monash University, Department of Economics.
  7. Masayoshi Hayashi & Robin Boadway, 2001. "An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 481-503, May.
  8. Dye, Richard F. & McGuire, Therese J., 1997. "The effect of property tax limitation measures on local government fiscal behavior," Journal of Public Economics, Elsevier, vol. 66(3), pages 469-487, December.
  9. Garrett, Thomas A, 2001. " The Leviathan Lottery? Testing the Revenue Maximization Objective of State Lotteries as Evidence for Leviathan," Public Choice, Springer, vol. 109(1-2), pages 101-17, October.
  10. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
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