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The Local Response to Tax Limitation Measures: Do Local Governments Manipulate Voters to Increase Revenues?

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  • Figlio, David N
  • O'Sullivan, Arthur

Abstract

This paper provides evidence that some cities subject to a statewide tax limit manipulate their mix of productive and administrative services in an attempt to get voters to override the statewide limit. When a statewide limit reduces a city's budget, one manipulative response is to cut "service" inputs (for example, teachers or uniformed police officers) by a relatively large amount, while cutting administrative inputs by a relatively small amount. This approach reveals a relatively large trade-off between public and private goods, and the severe consequences from a tax limit may encourage local voters to override the statewide limit. We provide evidence that cities with local-override options tend to adopt this approach. Manipulation is most prevalent among cities run by city managers (as opposed to strong mayors). Copyright 2001 by the University of Chicago.

Suggested Citation

  • Figlio, David N & O'Sullivan, Arthur, 2001. "The Local Response to Tax Limitation Measures: Do Local Governments Manipulate Voters to Increase Revenues?," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 233-257, April.
  • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:233-57
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    File URL: http://dx.doi.org/10.1086/320274
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    1. Davis, Michael L & Hayes, Kathy, 1993. "The Demand for Good Government," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 148-152, February.
    2. Randall W. Eberts & Timothy J. Gronberg, 1988. "Can competition among local governments constrain government spending?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-9.
    3. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-296, June.
    4. Cutler, David M. & Elmendorf, Douglas W. & Zeckhauser, Richard, 1999. "Restraining the Leviathan: property tax limitation in Massachusetts," Journal of Public Economics, Elsevier, vol. 71(3), pages 313-334, March.
    5. Downes, Thomas A. & Figlio, David N., 1999. "Do Tax and Expenditure Limits Provide a Free Lunch? Evidence on the Link Between Limits and Public Sector Service Quality," National Tax Journal, National Tax Association, vol. 52(n. 1), pages 113-28, March.
    6. 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.
    7. Downes, Thomas A. & Figlio, David N., 1999. "Do Tax and Expenditure Limits Provide a Free Lunch? Evidence on the Link Between Limits and Public Sector Service Quality," National Tax Journal, National Tax Association, vol. 52(1), pages 113-128, March.
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    Cited by:

    1. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2007. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Public Choice, Springer, vol. 130(3), pages 267-292, March.
    2. Gebhard Kirchgassner, 2002. "The effects of fiscal institutions on public finance: a survey of the empirical evidence," Chapters,in: Political Economy and Public Finance, chapter 9 Edward Elgar Publishing.
    3. Phuong Nguyen-Hoang, 2012. "Fiscal effects of budget referendums: evidence from New York school districts," Public Choice, Springer, vol. 150(1), pages 77-95, January.
    4. Ron Cheung, 2005. "The Effect of Property Tax Limitations on Residential Private Governments," Working Papers wp2005_05_01, Department of Economics, Florida State University.
    5. Fischer, Justina A.V., 2007. "The Impact of Direct Democracy on Public Education: Evidence for Swiss Students in Reading, Mathematics and Natural Science," SSE/EFI Working Paper Series in Economics and Finance 688, Stockholm School of Economics.
    6. Justina A.V. Fischer, 2005. "Do Institutions of Direct Democracy Tame the Leviathan? Swiss Evidence on the Structure of Expenditure for Public Education," CESifo Working Paper Series 1628, CESifo Group Munich.
    7. repec:taf:applec:v:49:y:2017:i:12:p:1164-1184 is not listed on IDEAS
    8. Thomas A. Downes, 2002. "Do state governments matter?: a review of the evidence on the impact on educational outcomes of the changing role of the states in the financing of public education," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 47(Jun), pages 143-180.
    9. Daniel J. Henderson & Léopold Simar & Le Wang, 2017. "The three s of public schools: irrelevant inputs, insufficient resources and inefficiency," Applied Economics, Taylor & Francis Journals, vol. 49(12), pages 1164-1184, March.
    10. Justin M. Ross & Madeline Farrell & Lang Kate Yang, 2015. "Indiana's Property Tax Caps: Old Idea, New Approach, and Surprising Incentives," Public Budgeting & Finance, Wiley Blackwell, vol. 35(4), pages 18-41, December.
    11. Epple, Dennis & Figlio, David & Romano, Richard, 2004. "Competition between private and public schools: testing stratification and pricing predictions," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1215-1245, July.

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