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Does Deductibility Influence Local Taxation?

  • Robert P. Inman
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    Recent proposals to reform the U.S. tax code all contain significant reforms of the cufrent provision allowing for the deductibility of state and local taxes.This paper examines the effect of deductibility reform on the revenue decisions of the largest U.S. cities. The analysis of eight alternative reforms concludes:(1) total taxes change very little in the long-run, falling at most by 13% and, for many cities, even rising slightly; (2) fees and license revenue (predominantly a tax on firms) generally fall, in some cases by 30% or more; (3) the net effect on total revenues (tax plus fees) is generally small, never declininq by more than 12% even with full loss of deductibility; and (4) policies to offset city revenue losses are effective in neutralizing the negative effects of deductibility reform.

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    File URL: http://www.nber.org/papers/w1714.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1714.

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    Date of creation: Oct 1985
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    Handle: RePEc:nbr:nberwo:1714
    Note: PE
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    1. Roger H. Gordon & Joel B. Slemrod, 1986. "An Empirical Examination of Municipal Financial Policy," NBER Chapters, in: Studies in State and Local Public Finance, pages 53-82 National Bureau of Economic Research, Inc.
    2. Haurin, Donald R., 1981. "Local income taxation in an urban area," Journal of Urban Economics, Elsevier, vol. 10(3), pages 323-337, November.
    3. Hettich, Walter & Winer, Stanley, 1984. "A positive model of tax structure," Journal of Public Economics, Elsevier, vol. 24(1), pages 67-87, June.
    4. John Gruenstein, 1980. "Jobs in the city: can Philadelphia afford to raise taxes?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-11.
    5. Grieson, Ronald E., 1974. "The economics of property taxes and land values: The elasticity of supply of structures," Journal of Urban Economics, Elsevier, vol. 1(4), pages 367-381, October.
    6. Buchanan, James M & Lee, Dwight R, 1982. "Tax Rates and Tax Revenues in Political Equilibrium: Some Simple Analytics," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 344-54, July.
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