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A Computable General Equilibrium Model of Intergovernmental Aid

  • Thomas J. Nechyba

This paper introduces a computable general equilibrium model of intergovernmental relations in which heterogeneous agents (i) are endowed with income and houses, (ii) are fully mobile between multiple jurisdictions, and (iii) vote in both local and state elections to determine local property and state income tax rates. The model is calibrated to New Jersey micro tax data and used to study the general equilibrium effects of state government policies. Three different types of intergovernmental programs are analyzed: (i) redistributive revenue sharing, (ii) district power equalization and (iii) deductibility of local taxes. The approach facilitates a heretofore difficult comparative analysis in that it provides for an integrated investigation of these programs in a single general equilibrium model.

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File URL: http://www.nber.org/papers/w5420.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5420.

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Date of creation: Jan 1996
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Publication status: published as Journal of Public Economics, 62, 363-397, 1996.
Handle: RePEc:nbr:nberwo:5420
Note: PE
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  1. 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.
  2. Feldstein, Martin S & Metcalf, Gilbert E, 1987. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 710-36, August.
  3. Inman, Robert P. & Wolf, Douglas, 1976. "Sofa: A simulation program for predicting and evaluating the policy effects of grants-in-aid," Socio-Economic Planning Sciences, Elsevier, vol. 10(2), pages 77-88.
  4. Feldstein, Martin S, 1975. "Wealth Neutrality and Local Choice in Public Education," American Economic Review, American Economic Association, vol. 65(1), pages 75-89, March.
  5. Brueckner, Jan K., 1983. "Central-city income redistribution and the flight to the suburbs : A stylized model," Regional Science and Urban Economics, Elsevier, vol. 13(2), pages 177-193, May.
  6. Romer, Thomas & Rosenthal, Howard & Munley, Vincent G., 1992. "Economic incentives and political institutions: Spending and voting in school budget referenda," Journal of Public Economics, Elsevier, vol. 49(1), pages 1-33, October.
  7. Holtz-Eakin, Douglas & Rosen, Harvey, 1990. "Federal deductibility and local property tax rates," Journal of Urban Economics, Elsevier, vol. 27(3), pages 269-284, May.
  8. Ladd, Helen F. & Yinger, John, 1994. "The Case for Equalizing Aid," National Tax Journal, National Tax Association, vol. 47(1), pages 211-24, March.
  9. Inman, Robert P., 1977. "Micro-fiscal planning in the regional economy : A general equilibrium approach," Journal of Public Economics, Elsevier, vol. 7(2), pages 237-260, April.
  10. Zodrow, George, 1984. "The incidence of metropolitan property tax base sharing and rate equalization," Journal of Urban Economics, Elsevier, vol. 15(2), pages 210-229, March.
  11. Bucovetsky, Sam, 1982. "Inequality in the Local Public Sector," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 128-45, February.
  12. Oakland, William H., 1994. "Fiscal Equalization: An Empty Box?," National Tax Journal, National Tax Association, vol. 47(1), pages 199-209, March.
  13. Singh, Nirvikar & Thomas, Ravi, 1989. "Matching Grant Versus Block Grants with Imperfect Information," National Tax Journal, National Tax Association, vol. 42(2), pages 191-203, June.
  14. Bradford, David F & Oates, Wallace E, 1971. "Towards a Predictive Theory of Intergovernmental Grants," American Economic Review, American Economic Association, vol. 61(2), pages 440-48, May.
  15. Cassidy, Glenn & Epple, Dennis & Romer, Thomas, 1989. "Redistribution by local governments in a monocentric urban area," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 421-454, August.
  16. Thomas J. Nechyba, 1996. "Public School Finance in a General Equilibrium Tiebout World: Equalization Programs, Peer Effects and Private School Vouchers," NBER Working Papers 5642, National Bureau of Economic Research, Inc.
  17. Rothstein, Paul, 1992. "The demand for education with 'power equalizing' aid : Estimation and simulation," Journal of Public Economics, Elsevier, vol. 49(2), pages 135-162, November.
  18. Wildasin, David E., 1983. "The welfare effects of intergovernmental grants in an economy with independent jurisdictions," Journal of Urban Economics, Elsevier, vol. 13(2), pages 147-164, March.
  19. Inman, Robert P., 1989. "The local decision to tax : Evidence from large U.S. Cities," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 455-491, August.
  20. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  21. Reschovsky, Andrew, 1994. "Fiscal Equalization and School Finance," National Tax Journal, National Tax Association, vol. 47(1), pages 185-97, March.
  22. de Bartolome, Charles A. M., 1991. "Redistributive state aid to local communities," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 511-528, November.
  23. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November.
  24. Douglas Holtz-Eakin & Harvey S. Rosen, 1987. "Tax Deductibility and Municipal Budget Structure," NBER Working Papers 2224, National Bureau of Economic Research, Inc.
  25. Fischel, William A., 1976. "An evaluation of proposals for metropolitan sharing of commercial and industrial property tax base," Journal of Urban Economics, Elsevier, vol. 3(3), pages 253-263, July.
  26. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
  27. Luger, Michael I., 1988. "Federal tax reform and the interjurisdictional mobility impulse," Journal of Urban Economics, Elsevier, vol. 23(2), pages 235-250, March.
  28. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-58, August.
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