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An empirical analysis of state and local tax structure in the context of the Leviathan model of government

Listed author(s):
  • Michael Nelson

This paper has investigated the ability of an extreme and relatively simple model of political behavior to explain the level of revenues generated by state and local governments. In general, the behavior of these governments appears to be at least consistent with many of the fiscal outcomes predicted by the Leviathan theory. Several, although not all, of the specific Leviathan theory hypotheses considered received empirical support. The evidence was consistent with the hypothesis that states utilizing comprehensive tax bases, especially a personal income tax, can be expected to generate higher levels of aggregate revenues. Strong support was also observed for the contention that intergovernmental competition by general-purpose substate governments may serve as a substitute for constitutional constraints in limiting the revenue generating power of local governments. Despite the consistency of the results with the Leviathan theory, caution must be exercised in reaching the conclusion that states are generating a surplus of funds for the discretionary use of governmental decision makers — a fundamental proposition of this theory. Conclusive evidence would require that the demand for locally financed publicly provided goods and services be estimated and compared with the level of revenues actually generated. Such an analysis is beyond the scope of this paper. In addition, it is also conceivable that the causality between comprehensive tax bases and the level of revenues generated by the states could be reversed from the direction considered in this paper. That is, it may be rational behavior on the part of states with greater levels of spending for whatever reason, to finance these expenditures with a broader tax base. Perhaps the significance of the Leviathan theory, and the results of this research which support aspects of that theory, are best viewed as part of the ongoing research in the development of a positive theory of public sector tax structure. The Leviathan theory contributes a new and important dimension to our understanding of government behavior. Other recent researchers in the area of tax structure theory, by focusing on the demand side, have formulated their theory solely in terms of voting rules and arrangements. See, for example, Sjoquist (1980) and Hettich and Winer (1984). Integration of the Leviathan theory with the more traditional public-choice theory remains an area for future research. Copyright Martinus Nijhoff Publishers 1986

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Article provided by Springer in its journal Public Choice.

Volume (Year): 49 (1986)
Issue (Month): 3 (January)
Pages: 283-294

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Handle: RePEc:kap:pubcho:v:49:y:1986:i:3:p:283-294
DOI: 10.1007/BF00127344
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  1. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
  2. Hettich, Walter & Winer, Stanley, 1984. "A positive model of tax structure," Journal of Public Economics, Elsevier, vol. 24(1), pages 67-87, June.
  3. David Sjoquist, 1981. "A median voter analysis of variations in the use of property taxes among local governments," Public Choice, Springer, vol. 36(2), pages 273-285, January.
  4. Buchanan, James M, 1985. "The Moral Dimension of Debt Financing," Economic Inquiry, Western Economic Association International, vol. 23(1), pages 1-6, January.
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