Working Paper: NBER ID: w7603
Authors: Andrew Haughwout; Robert Inman; Steven Craig; Thomas Luce
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 all four of our cities are near the peaks of their longer-run revenue hills. Equilibrium effects are observed within three to four fiscal years after the initial increase in local tax rates. A significant negative impact (current period) effect of a balanced budget increase in city property tax rates on city property base is interpreted as a capitalization effect and suggests that marginal increases in 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.
Keywords: local taxation; economic activity; general equilibrium; revenue hills
JEL Codes: H2; H71; R51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing city property tax rates (R51) | city property base (H82) |
| local income and wage tax rates in New York City and Philadelphia (H29) | city employment levels (J68) |
| increasing city property tax rates (R51) | economic activities (E29) |
| local income and wage tax rates in New York City and Philadelphia (H29) | economic activities (E29) |