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Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion

  • Nechyba, Thomas J

This paper addresses two long-standing positive questions in public finance: why is the property tax, despite widespread popular complaints against its fairness, the almost exclusive tax instrument used by local governments and why do we consistently observe higher levels of governments (states) undermining local property tax systems through income tax-funded grants and state-imposed caps on local property tax rates? Results indicate that setting local income tax rates to zero is a dominant strategy for communities that face competition from neighboring governments and that only through higher government intervention can local income taxes be introduced. Copyright 1997 by the University of Chicago.

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File URL: http://www.jstor.org/stable/10.1086/262076
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 105 (1997)
Issue (Month): 2 (April)
Pages: 351-84

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Handle: RePEc:ucp:jpolec:v:105:y:1997:i:2:p:351-84
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  1. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  2. Pogodzinski, J. M. & Sjoquist, David L., 1993. "Alternative tax regimes in a local public good economy," Journal of Public Economics, Elsevier, vol. 50(1), pages 115-141, January.
  3. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  4. Thomas J. Nechyba, 1996. "Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting," NBER Technical Working Papers 0190, National Bureau of Economic Research, Inc.
  5. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  6. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
  7. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  8. Wildasin, David, 1993. "Fiscal competition and interindustry trade," Regional Science and Urban Economics, Elsevier, vol. 23(3), pages 369-399, July.
  9. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August.
  10. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  11. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  12. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
  13. Coates, Dennis, 1993. "Property tax competition in a repeated game," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 111-119, March.
  14. Ioannides, Yannis M., 1987. "Residential mobility and housing tenure choice," Regional Science and Urban Economics, Elsevier, vol. 17(2), pages 265-287.
  15. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November.
  16. Eric A. Hanushek & John M. Quigley, 1978. "An Explicit Model of Intra-Metropolitan Mobility," Land Economics, University of Wisconsin Press, vol. 54(4), pages 411-429.
  17. Krelove, R., 1993. "The persistence and inefficiency of property tax finance of local public expenditures," Journal of Public Economics, Elsevier, vol. 51(3), pages 415-435, July.
  18. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November.
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