The Local Decision to Tax: Evidence from Large U.S. Cities

48 Pages Posted: 7 Aug 2007 Last revised: 27 Jun 2010

See all articles by Robert P. Inman

Robert P. Inman

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

Date Written: April 1989

Abstract

The structure of local taxation is an important determinant of the fiscal performance of decentralized public economies. In contrast to our understanding of local government spending, however, we know surprisingly little about how cities and states set taxes. This study specifies and estimates a model of the institutional, political, and economic determinants of the local decision to tax. Redistributive politics is an important determinant of local tax policy, at least for this sample of 41 large U.S. cities during the period 1961-1986. The results cast serious doubt on the validity of the "representative" or average taxpayer approach to behavioral modeling of fiscal policy for large, income diverse governments. The results allow us to predict the effects on local financing of removing federal tax deductibility of local taxes, an issue of current importance in the United States.

Suggested Citation

Inman, Robert P., The Local Decision to Tax: Evidence from Large U.S. Cities (April 1989). NBER Working Paper No. w2921, Available at SSRN: https://ssrn.com/abstract=481464

Robert P. Inman (Contact Author)

University of Pennsylvania - Finance Department ( email )

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