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Local Redistribution Financed by Income Tax

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  • Stephen M. Calabrese

    (University of South Florida)

Abstract

In this article, a positive model of local income redistribution financed by income tax is developed. The tax rate and the level of redistribution within a community are determined through majority voting. The amount of redistribution that each local government can undertake is constrained by housing market distortions and by the ability of people to freely move from one jurisdiction to another. The author establishes a number of equilibrium conditions with a general form of the utility function. The three different sets of numerically computed equilibria are developed. The first set of computational equilibria is developed assuming voters are less sophisticated. These results are compared with the results of the property tax-financed redistribution-computed equilibria in Epple and Romer’s study. The second set of computational equilibria are developed assuming voters are highly sophisticated. The third set are developed assuming that land rents are equally divided among the entire population.

Suggested Citation

  • Stephen M. Calabrese, 2001. "Local Redistribution Financed by Income Tax," Public Finance Review, , vol. 29(4), pages 259-303, July.
    • Handle: RePEc:sae:pubfin:v:29:y:2001:i:4:p:259-303
    DOI: 10.1177/109114210102900401
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    References listed on IDEAS

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    1. Harmon, Oskar R., 1988. "The income elasticity of demand for single-family owner-occupied housing: An empirical reconciliation," Journal of Urban Economics, Elsevier, vol. 24(2), pages 173-185, September.
    2. Johnson, William R, 1988. "Income Redistribution in a Federal System," American Economic Review, American Economic Association, vol. 78(3), pages 570-573, June.
    3. Cassidy, Glenn & Epple, Dennis & Romer, Thomas, 1989. "Redistribution by local governments in a monocentric urban area," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 421-454, August.
    4. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-858, August.
    5. Silva, Fabio & Sonstelie, Jon, 1995. "Did Serrano Cause a Decline in School Spending," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(2), pages 199-215, June.
    6. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
    7. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
    8. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    9. Lau, Lawrence J., 1969. "Duality and the structure of utility functions," Journal of Economic Theory, Elsevier, vol. 1(4), pages 374-396, December.
    10. Goodspeed, Timothy J., 1989. "A re-examination of the use of ability to pay taxes by local governments," Journal of Public Economics, Elsevier, vol. 38(3), pages 319-342, April.
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    Cited by:

    1. Kuhlmey, Florian, 2017. "Local income tax competition with progressive taxes and a fiscal equalization scheme," Working papers 2017/17, Faculty of Business and Economics - University of Basel.
    2. Florian Kuhlmey, 2022. "Tiebout sorting with progressive income taxation and a fiscal equalization scheme," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-21, December.
    3. Schmidheiny, Kurt, 2006. "Income segregation from local income taxation when households differ in both preferences and incomes," Regional Science and Urban Economics, Elsevier, vol. 36(2), pages 270-299, March.
    4. Kurt Schmidheiny, 2002. "Income Stratifcation in Multi-Community Models," Diskussionsschriften dp0215, Universitaet Bern, Departement Volkswirtschaft.
    5. Stephen Calabrese & Dennis Epple, 2010. "On the political economy of tax limits," Working Papers 2010/14, Institut d'Economia de Barcelona (IEB).
    6. Dennis Epple, 2003. "Modeling Population Statification Across Locations: An Overview," International Regional Science Review, , vol. 26(2), pages 189-196, April.
    7. Stephen Calabrese & Dennis Epple, 2010. "On the political economy of tax limits," Working Papers 2010/14, Institut d'Economia de Barcelona (IEB).

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