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Rules versus home rule: Local government responses to negative revenue shocks

Author

Listed:
  • Stan Veuger

    (American Enterprise Institute)

  • Daniel Shoag
  • Cody Tuttle

Abstract

Local governments rely heavily on sales tax revenue. We use national bankruptcies of big-box retail chains to study sudden plausibly exogenous revenue shortfalls. Treated localities respond by reducing spending on law enforcement and administrative services. We further study how cities with different degrees of autonomy vary in their response. Cities in home rule states react more swiftly by raising taxes or issuing bonds. A regression discontinuity analysis of cities in Illinois emphasizes that this effect of local autonomy is causal. Home rule cities do not abuse their discretion: their bond ratings are more likely to be strong.

Suggested Citation

  • Stan Veuger & Daniel Shoag & Cody Tuttle, 2017. "Rules versus home rule: Local government responses to negative revenue shocks," AEI Economics Working Papers 953635, American Enterprise Institute.
  • Handle: RePEc:aei:rpaper:953635
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    File URL: http://www.aei.org/publication/rules-versus-home-rule-local-government-responses-to-negative-revenue-shocks
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    More about this item

    Keywords

    revenue; Local government;

    JEL classification:

    • A - General Economics and Teaching

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