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Revenue Diversification in Large U.S. Cities


  • Howard Chernick

    (Hunter College)

  • Adam Langley

    (Lincoln Institute of Land Policy)

  • Andrew Reschovsky

    (University of Wisconsin–Madison)


The housing crisis and the Great Recession have placed tremendous fiscal pressure on the United States’ central cities. Cuts in state government fiscal assistance to local governments, combined with shrinking property tax bases, make it hard for local governments to maintain current levels of public services. Although the property tax remains the single most important own source of municipal government revenues, the decline in property values and the rising tide of foreclosures suggests that relying on more diversified local tax bases may strengthen the ability of cities to provide a range of public services for their residents. In this paper, we use a panel of data on the financing of the nation’s largest central cities from 1997 to 2008 to explore the role of revenue diversification in determining the level of general revenues of the United States’ largest central cities. Because expenditure responsibilities vary among city governments and because different levels and types of government play different roles, we develop the concept of constructed governments in order to allow us to compare the revenue-raising policies of large central cities across time and space. Our empirical results provide strong support for the hypothesis that a more diversified revenue structure generates more revenues than one that relies primarily on the property tax.

Suggested Citation

  • Howard Chernick & Adam Langley & Andrew Reschovsky, 2011. "Revenue Diversification in Large U.S. Cities," IMFG Papers 05, University of Toronto, Institute on Municipal Finance and Governance.
  • Handle: RePEc:mfg:wpaper:05

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    References listed on IDEAS

    1. Simanti Bandyopadhyay & M. Govinda Rao, 2009. "Fiscal Health of Selected Indian Cities," Development Economics Working Papers 22970, East Asian Bureau of Economic Research.
    2. R. Kavita Rao, 2008. "Goods and Services Tax for India," Macroeconomics Working Papers 22976, East Asian Bureau of Economic Research.
    3. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    4. Breton,Albert, 1996. "Competitive Governments," Cambridge Books, Cambridge University Press, number 9780521481021, March.
    5. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    6. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
    7. Weingast, Barry R., 2009. "Second generation fiscal federalism: The implications of fiscal incentives," Journal of Urban Economics, Elsevier, vol. 65(3), pages 279-293, May.
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    Cited by:

    1. Andrew Feltenstein & Nour Abdul-Razzak & Jeffrey Condon & Biplab Kumar Datta, 2015. "Tax Evasion, the Provision of Public Infrastructure and Growth: A General Equilibrium Approach to Two Very Different Countries, Egypt and Mauritius," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 24(suppl_2), pages 43-72.

    More about this item


    property tax; local government revenues; tax base; revenue diversification; constructed governments;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies


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