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The Effects of Fiscal Competition on Local Property and Income Tax Reliance

Author

Listed:
  • Spry John Arthur

    (University of St. Thomas, jaspry@stthomas.edu)

Abstract

This paper examines why local governments rely heavily on the property tax, even when they have access to another revenue source, using data from Ohio’s recent experience of permitting local school districts to use both property taxes and residence-based income taxes. Nechyba’s (1997) theory that local governments’ reliance on the property tax instead of the income tax is due to fiscal competition for relatively high-income residents is tested using data from 610 Ohio school districts. The Ohio residence-based school district income tax is used by only 119 school districts, at low tax rates, to supplement the traditional property tax. The use of a local income tax declines sharply as fiscal competition increases, as measured by the number of nearby school districts. School districts with greater opportunities to export the burden of the property tax to non-residential property owners are less likely to adopt a local income tax.

Suggested Citation

  • Spry John Arthur, 2005. "The Effects of Fiscal Competition on Local Property and Income Tax Reliance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-21, January.
    • Handle: RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:1
    DOI: 10.1515/1538-0653.1054
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    Citations

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    Cited by:

    1. Benny Geys & Federico Revelli, 2011. "Economic and Political Foundations of Local Tax Structures: An Empirical Investigation of the Tax Mix of Flemish Municipalities," Environment and Planning C, , vol. 29(3), pages 410-427, June.
    2. Lyudmil Naydenov, 2019. "Personal And Corporate Income Taxes As Sources Of Local Revenues - Opportunities And Challenges," Economics 21, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 2 Year 20, pages 17-33.
    3. Michael Conlin & Paul N. Thompson, 2014. "Michigan and Ohio K–12 Educational Financing Systems: Equality and Efficiency," Education Finance and Policy, MIT Press, vol. 9(4), pages 417-445, October.
    4. Joshua C. Hall & Justin M. Ross, 2010. "Tiebout Competition, Yardstick Competition, and Tax Instrument Choice: Evidence from Ohio School Districts," Public Finance Review, , vol. 38(6), pages 710-737, November.
    5. Joshua Hall & Antonis Koumpias, 2015. "The Volatility of School District Income Tax Revenues: Is Tax Base Diversification a Good Idea?," Working Papers 15-14, Department of Economics, West Virginia University.
    6. Joshua Hall, 2006. "Fiscal competition and tax instrument choice: the role of income inequality," Economics Bulletin, AccessEcon, vol. 8(12), pages 1-8.
    7. repec:ebl:ecbull:v:8:y:2006:i:12:p:1-8 is not listed on IDEAS
    8. Joshua C. Hall & Antonios M. Koumpias, 2018. "Growth And Variability Of School District Income Tax Revenues: Is Tax Base Diversification A Good Idea For School Financing?," Contemporary Economic Policy, Western Economic Association International, vol. 36(4), pages 678-691, October.
    9. Joshua Hall & Donald Lacombe & Maria Tackett, 2020. "Income Tax Adoption and Spatial Diffusion," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(2), pages 185-193, June.
    10. Bo Zhao, 2021. "Opting in with the Joneses: What Affects the Timing of Municipal Adoption of a Local-option Meals Tax?," Working Papers 21-14, Federal Reserve Bank of Boston.
    11. José da Silva Costa & Armindo Cravalho, 2013. "Yardstick Competition among Portuguese Municipalities: The Case of Urban Property Tax (IMI)," FEP Working Papers 495, Universidade do Porto, Faculdade de Economia do Porto.

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