Public investment and budget rules for state vs. local governments
Across different layers of the U.S. government there are surprisingly large differences in institutional provisions that impose fiscal discipline, such as constitutionally mandated deficit or debt limits, or specific tax bases. In this paper we develop a framework that can be used to quantitatively assess their costs and benefits. The model features both endogenous and exogenous mobility across jurisdictions, so we can evaluate whether the different degree of mobility at the local vs. national level can justify different institutional restrictions. In preliminary results, we show that pure land taxes have very beneficial incentive effects, but can only raise limited amounts of revenues. In contrast, under exogenous mobility, income taxes lead unambiguously to insufficient incentives to invest in public capital, unless the fiscal constraints explicitly favor such investment. This conclusion seems to hold even with the introduction of endogenous mobility, since adverse congestion effects from inefficient migration offset the beneficial impact of (partial) capitalization of future taxes into land prices.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834|
Web page: http://www.chicagofed.org/
More information through EDIRC
|Order Information:|| Web: http://www.chicagofed.org/webpages/publications/print_publication_order_form.cfm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
- Wildasin, David E. & Wilson, John Douglas, 1996. "Imperfect mobility and local government behaviour in an overlapping-generations model," Journal of Public Economics, Elsevier, vol. 60(2), pages 177-198, May.
- Marina Azzimonti Renzo, 2004. "On the dynamic inefficiency of governments," 2004 Meeting Papers 228, Society for Economic Dynamics.
- Marco Battaglini, 2009.
"On the Case for a Balanced Budget Amendment to the U.S. Constitution,"
2009 Meeting Papers
131, Society for Economic Dynamics.
- Marina, Azzimonti & Marco, Battaglini & Stephen, Coate, 2010. "On the Case for a Balanced Budget Amendment to the U.S. Constitution," MPRA Paper 25935, University Library of Munich, Germany.
- Marco Bassetto, 2006.
"Politics and Efficiency of Separating Capital and Ordinary Government Budgets,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 121(4), pages 1167-1210.
- Marco Bassetto & Thomas J. Sargent, 2005. "Politics and efficiency of separating capital and ordinary Government budgets," Working Paper Series WP-05-07, Federal Reserve Bank of Chicago.
- Thomas J. Sargent & Marco Bassetto, 2004. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," 2004 Meeting Papers 3, Society for Economic Dynamics.
- Marco Bassetto & Thomas Sargent, 2005. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," NBER Working Papers 11030, National Bureau of Economic Research, Inc.
- Bassetto, Marco, 2005.
"Equilibrium and government commitment,"
Journal of Economic Theory,
Elsevier, vol. 124(1), pages 79-105, September.
- Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2005. "The dynamics of government," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1331-1358, October.
- Matthias Doepke & Fabrizio Zilibotti, 2005.
"The Macroeconomics of Child Labor Regulation,"
American Economic Review,
American Economic Association, vol. 95(5), pages 1492-1524, December.
- Chari, V V & Kehoe, Patrick J, 1990.
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 783-802, August.
- Jovanovic, Boyan & Rosenthal, Robert W., 1988.
"Anonymous sequential games,"
Journal of Mathematical Economics,
Elsevier, vol. 17(1), pages 77-87, February.
- John P. Conley & Antonio Rangel, 2001.
"Intergenerational Fiscal Constitutions: How to Protect Future Generations Using Land Taxes and Federalism,"
NBER Working Papers
8394, National Bureau of Economic Research, Inc.
- John Conley & Antonio Rangel, 2001. "Intergenerational Fiscal Constitutions: How to Protect Future Generations Using Land Taxes and Federalism," Economics Bulletin, AccessEcon, vol. 28(17), pages A0.
- Mieszkowski, Peter & Zodrow, George R, 1989. "Taxation and the Tiebout Model: The Differential Effects of Head Taxes, Taxes on Land Rents, and Property Taxes," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1098-1146, September.
- Schultz, C. & Sjostrom, T., 2000.
"Local Public Goods, Debt and Migration,"
6-00-1, Pennsylvania State - Department of Economics.
- Harald Uhlig, 1996.
"A law of large numbers for large economies (*),"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 41-50.
- Jonah B. Gelbach, 2004. "Migration, the Life Cycle, and State Benefits: How Low Is the Bottom?," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 1091-1130, October.
When requesting a correction, please mention this item's handle: RePEc:fip:fedhwp:wp-08-21. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernie Flores)
If references are entirely missing, you can add them using this form.