Working Paper: CEPR ID: DP4354
Authors: Ignatius J. Horstmann; Kimberley Ann Scharf; Al Slivinski
Abstract: This Paper explores the theoretical relationship between tax relief for private giving and locational equilibria. Tax relief for giving may receive political support at the local level because of its distributional effects; however, through its effects on public provision choices, such relief may affect individual location decisions and, in so doing, may promote economic segregation rather than integration. In such a scenario, a ban on local tax incentives for giving would be Pareto-improving and would thus be sanctioned by a majority-supported federal tax constitution.
Keywords: jurisdiction formation; private provision of public goods
JEL Codes: H20; H70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subsidies for private provision of local public goods (H42) | economic segregation (I24) |
| availability of tax incentives for private giving (H20) | segregation into two separate jurisdictions (H73) |
| low willingness-to-pay individuals shift tax burden onto high willingness-to-pay individuals (H22) | high willingness-to-pay individuals segregate into communities of similar individuals (R23) |
| subsidies for private provision of local public goods (H42) | high willingness-to-pay individuals choose to live in separate jurisdictions (H73) |
| ban on local tax incentives for giving (H71) | prevents segregation from being an equilibrium (J79) |