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In search of an appropriate tax base for local Leviathans

  • Göbel, Jürgen

The impact of local fiscal policy depends on the choice of the tax base. In this paper, we take four criteria to evaluate tax bases, namely: efficiency, simplicity, flexibility, and fairness. The results of such an evaluation depend on how we describe the involved agents. We construct a two stage model of a local economy with three types of agents: Leviathans, households, and housing firms. Each Leviathan seeks to maximize the surplus of his local fiscal budget. Each household seeks to maximize its life-time utility from three types of goods: composite private goods, housing, and local public goods. Each housing firm seeks to maximize its profits. In this model, we analyze the characteristics of four distinct tax bases: land rent, housing capital rent, housing sales, and housing property. In particular, we analyze the responses of the households, the housing firms, and the housing prices on a change of a specific tax rate. The results are used to evaluate each tax base with respect to our four criteria.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13940.

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Date of creation: 28 Feb 2009
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Handle: RePEc:pra:mprapa:13940
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  1. Hettich, W. & Winer, S.L., 1993. "The Political Economy of Taxation," Papers 8, Carleton - Business Administration.
  2. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  4. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December.
  5. Brennan, Geoffrey & Buchanan, James M., 1978. "Tax instruments as constraints on the disposition of public revenues," Journal of Public Economics, Elsevier, vol. 9(3), pages 301-318, June.
  6. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  7. Buchanan, James M. & Goetz, Charles J., 1972. "Efficiency limits of fiscal mobility: An assessment of the tiebout model," Journal of Public Economics, Elsevier, vol. 1(1), pages 25-43, April.
  8. repec:cup:cbooks:9780521233293 is not listed on IDEAS
  9. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
  10. Roger H. Gordon & John D. Wilson, 2001. "Expenditure Competition," NBER Working Papers 8189, National Bureau of Economic Research, Inc.
  11. Sonstelie, Jon C. & Portney, Paul R., 1978. "Profit maximizing communities and the theory of local public expenditure," Journal of Urban Economics, Elsevier, vol. 5(2), pages 263-277, April.
  12. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  13. 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.
  14. repec:cup:cbooks:9780521894753 is not listed on IDEAS
  15. Henderson, J Vernon, 1985. "The Tiebout Model: Bring Back the Entrepreneurs," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 248-64, April.
  16. repec:cup:cbooks:9780521027922 is not listed on IDEAS
  17. Vernon Henderson, J., 1995. "Will homeowners impose property taxes?," Regional Science and Urban Economics, Elsevier, vol. 25(2), pages 153-181, April.
  18. Brueckner, Jan K., 1983. "Property value maximization and public sector efficiency," Journal of Urban Economics, Elsevier, vol. 14(1), pages 1-15, July.
  19. Caplan, Bryan, 2001. " Standing Tiebout on His Head: Tax Capitalization and the Monopoly Power of Local Governments," Public Choice, Springer, vol. 108(1-2), pages 101-22, July.
  20. Hoyt, William H., 1999. "Leviathan, local government expenditures, and capitalization," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 155-171, March.
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