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Expenditure effects of metropolitan tax base sharing: A public choice analysis

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  • Dolores Martin
  • James Schmidt

Abstract

This research explores probable budgetary consequences from the introduction of an institutional change which requires communities in metropolitan areas to pool any growth in the commercial-industrial tax base so that all cities benefit from new development irrespective of where the development occurs. Sharing of the tax base has been suggested as a means to overcome fiscal disparities among local governments in metropolitan areas and to reduce competition for new industrial development, thus, promoting ‘orderly development’ of the urban area. An alternative view of the institutional change focuses on the consequences of removing the tax base from the control of the local unit of government and suggests that based upon existing studies of government size and the cost of public services, government managers will be less responsive to the wishes of the citizen/taxpayer after the introduction of tax base sharing. The efficiency aspects of local government finance are examined and based upon data for the Minneapolis-St. Paul metropolitan area, the expenditure effects are estimated. The empirical evidence suggests that while revenue flows are altered in the metropolitan areas, the primary impact of tax base sharing has been to expand the level of government expenditures, not equalize interjurisdictional tax rates. Copyright Martinus Nijhoff Publishers 1983

Suggested Citation

  • Dolores Martin & James Schmidt, 1983. "Expenditure effects of metropolitan tax base sharing: A public choice analysis," Public Choice, Springer, vol. 40(2), pages 175-186, January.
    • Handle: RePEc:kap:pubcho:v:40:y:1983:i:2:p:175-186
    DOI: 10.1007/BF00118519
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    References listed on IDEAS

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    1. Litvack, James M & Oates, Wallace E, 1970. "Group Size and the Output of Public Goods: Theory and Application to State-Local Finance in the United States," Public Finance = Finances publiques, , vol. 25(1), pages 42-62.
    2. Albert Breton, 1974. "The economic theory of representative government: A reply," Public Choice, Springer, vol. 20(1), pages 129-133, December.
    3. Wagner, Richard E & Weber, Warren E, 1975. "Competition, Monopoly, and the Organization of Government in Metropolitan Areas," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 661-684, December.
    4. Martin, Dolores Tremewan & Wagner, Richard E, 1978. "The Institutional Framework for Municipal Incorporation: An Economic Analysis of Local Agency Formation Commissions in California," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 409-425, October.
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    1. Dwight Lee, 1985. "Reverse revenue sharing: A modest proposal," Public Choice, Springer, vol. 45(3), pages 279-289, January.
    2. Buchanan James M. & Lee Dwight R., 1994. "On A Fiscal Constitution For The European Union," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 5(2-3), pages 219-232, June.

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