Sub-metropolitan tax competition with household and capital mobility
- 97 Downloads
This paper investigates the efficiency properties of tax competition between sub-metropolitan jurisdictions when capital, residents and workers are mobile, and both households and firms compete for local land markets. We analyze two decentralized equilibria: (1) With a local tax on residents and two separate local taxes on capital and land inputs, efficiency is achieved and the existence of a marginal fiscal cost due to residents’ mobility is revealed; (2) Combination of the taxes on capital and land inputs into a single business property tax leads local authorities to charge inefficiently high taxation on capital. We show that capital mobility induces a reduction in the business land taxation and local public inputs are used to offset the distorting effects of the property tax, accounting for the distorting impact of workers’ mobility.
KeywordsTax competition Public goods Public inputs Household mobility Capital mobility
JEL ClassificationH71 H72 R50 R51
I thank the editor and an anonymous referee for helpful comments and suggestions. I am grateful to Sonia Paty, Florence Goffette-Nagot, Thierry Madiès, Stéphane Riou, Hubert Jayet, Etienne Farvaque, Albert Sollé-Ollé, Fransisco José Veiga, Stéphane Gauthier, Michael Suher for valuable comments. I also thank participants in the Annual Meeting of the North American Regional Science Council (Minneapolis), Public Economics at the Regional Level Workshop (Santiago de Compostela), Political Economy and Local Public Finance Workshop (Lille), GATE (Lyon), Journées de Microéconomie Appliquée (Besançon) and French Economic Association Meeting (Nancy) for their comments. Financial support from Région Auvergne-Rhne-Alpes (ARC 7 and Explora’Doc) is gratefully acknowledged.
- Bergstrom, T. C., & Goodman, R. P. (1973). Private demands for public goods. The American Economic Review, 63(3), 280–296.Google Scholar
- Borcherding, T. E., & Deacon, R. T. (1972). The demand for the services of non-federal governments. The American Economic Review, 62(5), 891–901.Google Scholar
- Braid, R. M. (1996). Symmetric tax competition with multiple jurisdictions in each metropolitan area. American Economic Review, 86(5), 1279–90.Google Scholar
- Brülhart, M., Bucovetsky, S., & Schmidheiny, K. (2015). Chapter 17—Taxes in cities. In J. V. H. Gilles Duranton & W. C. Strange (Eds.), Handbook of regional and urban economics, handbook of regional and urban economics (p. 1123). Amsterdam: Elsevier.Google Scholar
- Deakin, E. (1989). Growth controls and growth management: A summary and review of empirical research. In D. J. Brower, D. R. Godschalk, & D. R. Porter (Eds.), Understanding growth management: Critical issues and a research agenda. Washington, DC: The Urban Land Institute.Google Scholar
- Feehan, J. P. (1989). Pareto-efficiency with three varieties of public input. Public Finance, 44(2), 237–248.Google Scholar
- Fisher, R. C. (2015). State and local public finance. New York: Routledge.Google Scholar
- Hettich, W., & Winer, S. L. (1988). Economic and political foundations of tax structure. The American Economic Review, 78, 701–712.Google Scholar
- Hillman, A. L. (1978). Symmetries and asymmetries between public input and public good equilibria. Public Finance, 33(3), 269–279.Google Scholar
- Keen, M., & Konrad, K. A. (2013). The theory of international tax competition and coordination. In Handbook of public economics (Vol. 5, pp. 257–328).Google Scholar
- Kitchen, H. (2007). Grants to small urban governments. Intergovernmental Fiscal Transfers (pp. 319–338). Washington, DC: The World Bank.Google Scholar
- Lincoln Institute of Land Policy. (2014). Significant features of the property tax. http://www.lincolninst.edu/subcenters/significant-features-property-tax/Report_Property_Tax_Classification.aspx. Accessed March, 2016.
- McKenzie, B. (2013). County-to-county commuting flows: 2006-10. US Census Bureau.Google Scholar
- McLure, C. E. (1986). Tax competition: Is what’s good for the private goose also good for the public gander? National Tax Journal, 39(3), 341–348.Google Scholar
- McMillan, J. (1979). A note on the economics of public intermediate goods. Public Finance, 34(2), 293–299.Google Scholar
- Mieszkowski, P., & Zodrow, G. R. (1989). Taxation and the Tiebout model: The differential effects of head taxes, taxes on land rents, and property taxes. Journal of Economic Literature, 27(3), 1098–1146.Google Scholar
- Oates, W. E. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovich.Google Scholar
- Quigley, J. M., & Rosenthal, L. A. (2005). The effects of land use regulation on the price of housing: What do we know? What can we learn? Cityscape, 8, 69–137.Google Scholar
- Slack, E. (2007). Grants to large cities and metropolitan areas. In R. Boadway & A. A. Shah (Eds.), Intergovernmental transfers: Principles and practice (pp. 453–482). Washington DC: The World Bank.Google Scholar
- Slack, E. (2010). Financing large cities and metropolitan areas (pp. 5–6). Toronto: Institute on Municipal Finance and Governance, Munk School, University of Toronto.Google Scholar
- Stafford, J., & DeBoer, L. (2014). The personal property tax in Indiana: Its reduction or elimination is no simple task. Indiana Fiscal Policy Institute. Retrieved from http://www.indianafiscal.org/resources/Documents/REPORT_The+Personal+Property+Tax++in+Indiana_Indiana+Fiscal+Policy+Institute_020614.pdf.
- Wellisch, D. (2006). Theory of public finance in a Federal state. no. 9780521026871 in Cambridge books. Cambridge: Cambridge University Press.Google Scholar
- Wildasin, D. E. (1991). Income redistribution in a common labor market. The American Economic Review, 81, 757–774.Google Scholar
- Wildasin, D. (2013). Urban public finance. London: Routledge.Google Scholar
- Wilson, J. D. (2003). Wilson, J. D.: The property tax: Competing views and a hybrid theory—Comments, University of Munich, Department of Economics. Chapters in Economics.Google Scholar
- Wilson, J. D. (1999). Theories of tax competition. National Tax Journal, 52(n. 2), 269–304.Google Scholar