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Federal tax reform and the financing of state and local governments

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  • Howard Chemick
  • Andrew Reschovsky

Abstract

Although the Reagan Administration tax reform proposals would reduce federal income tax liabilities for most taxpayers, federal tax reform would also create strong pressures on state and local governments to cut taxes and public services. These pressures would arise primarily because itemizers would no longer be able to deduct state and local taxes in determining their federal income tax liabilities. In New York City and Boston, it is likely that the Administration's tax reform would induce cuts in spending that range from 2.5 to 7.5 percent. While the elimination of state and local tax deductibility may promote allocative efficiency in the provision of local public goods, the cost would be a decline in the degree of redistribution through the state and local public sector, and a reduction in local public services for the poor.

Suggested Citation

  • Howard Chemick & Andrew Reschovsky, 1986. "Federal tax reform and the financing of state and local governments," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 5(4), pages 683-706.
  • Handle: RePEc:wly:jpamgt:v:5:y:1986:i:4:p:683-706
    DOI: 10.1002/pam.4050050402
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    File URL: http://hdl.handle.net/10.1002/pam.4050050402
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    Cited by:

    1. Nechyba, Thomas, 1996. "A computable general equilibrium model of intergovernmental aid," Journal of Public Economics, Elsevier, vol. 62(3), pages 363-397, November.
    2. Robert P. Inman, 1989. "The Local Decision to Tax: Evidence from Large U.S. Cities," NBER Working Papers 2921, National Bureau of Economic Research, Inc.

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