Local Revenue Hills: Evidence from Four U.S. Cities

46 Pages Posted: 11 May 2003

See all articles by Andrew Haughwout

Andrew Haughwout

Federal Reserve Bank of New York

Robert P. Inman

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Steven G. Craig

University of Houston - Department of Economics

Thomas Luce

Ameregis - Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 2003

Abstract

We provide estimates of the impact and long-run elasticities of tax base with respect to tax rates for four large U.S. cities: Houston (property taxation), Minneapolis (property taxation), New York City (property, general sales, and income taxation), and Philadelphia (property, gross receipts, and wage taxation). Results suggest that three of our cities are near the peaks of their revenue hills; Minneapolis is the exception. A significant negative effect of a balanced budget increase in city property tax rates on city property tax base is interpreted as a capitalization effect and suggests that marginal increases in tax-financed city spending do not provide positive net benefits to property owners. Estimates of the effects of taxes on city employment levels for New York City and Philadelphia -- the two cities for which employment series are available -- show the local income and wage tax rates have significant negative effects on city employment levels. Cuts in these tax rates are likely to be an economically cost effective way to increase city jobs.

Suggested Citation

Haughwout, Andrew F. and Inman, Robert P. and Craig, Steven G. and Luce, Thomas, Local Revenue Hills: Evidence from Four U.S. Cities (May 2003). NBER Working Paper No. w9686, Available at SSRN: https://ssrn.com/abstract=406058

Andrew F. Haughwout

Federal Reserve Bank of New York ( email )

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Robert P. Inman (Contact Author)

University of Pennsylvania - Finance Department ( email )

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Steven G. Craig

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Thomas Luce

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