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The Local Response to Tax Limitation Measures: Do Local Governments Manipulate Voters to Increase Revenues?

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  • Figlio, David N
  • O'Sullivan, Arthur

Abstract

This paper provides evidence that some cities subject to a statewide tax limit manipulate their mix of productive and administrative services in an attempt to get voters to override the statewide limit. When a statewide limit reduces a city's budget, one manipulative response is to cut "service" inputs (for example, teachers or uniformed police officers) by a relatively large amount, while cutting administrative inputs by a relatively small amount. This approach reveals a relatively large trade-off between public and private goods, and the severe consequences from a tax limit may encourage local voters to override the statewide limit. We provide evidence that cities with local-override options tend to adopt this approach. Manipulation is most prevalent among cities run by city managers (as opposed to strong mayors). Copyright 2001 by the University of Chicago.

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  • Figlio, David N & O'Sullivan, Arthur, 2001. "The Local Response to Tax Limitation Measures: Do Local Governments Manipulate Voters to Increase Revenues?," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 233-257, April.
    • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:233-57
    DOI: 10.1086/320274
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    Cited by:

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    3. Gebhard Kirchgassner, 2002. "The effects of fiscal institutions on public finance: a survey of the empirical evidence," Chapters, in: Stanley L. Winer & Hirofumi Shibata (ed.), Political Economy and Public Finance, chapter 9, Edward Elgar Publishing.
    4. Justina A.V. Fischer, 2005. "Do Institutions of Direct Democracy Tame the Leviathan? Swiss Evidence on the Structure of Expenditure for Public Education," CESifo Working Paper Series 1628, CESifo.
    5. Daniel J. Henderson & Léopold Simar & Le Wang, 2017. "The three s of public schools: irrelevant inputs, insufficient resources and inefficiency," Applied Economics, Taylor & Francis Journals, vol. 49(12), pages 1164-1184, March.
    6. Lavertu, Stéphane & Clair, Travis St., 2018. "Beyond spending levels: Revenue uncertainty and the performance of local governments," Journal of Urban Economics, Elsevier, vol. 106(C), pages 59-80.
    7. Henderson, Daniel & Simar, Leopold & Wang, Le, 2013. "Schooling inputs, property tax caps and effciency scores in public schools," LIDAM Discussion Papers ISBA 2013013, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    8. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2007. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Public Choice, Springer, vol. 130(3), pages 267-292, March.
    9. Justin M. Ross & Madeline Farrell & Lang Kate Yang, 2015. "Indiana's Property Tax Caps: Old Idea, New Approach, and Surprising Incentives," Public Budgeting & Finance, Wiley Blackwell, vol. 35(4), pages 18-41, December.
    10. Michael S. Hayes, 2020. "Tax and Expenditure Limitations, Salary Reductions, and Public Employee Turnover," Public Budgeting & Finance, Wiley Blackwell, vol. 40(4), pages 38-61, December.
    11. Epple, Dennis & Figlio, David & Romano, Richard, 2004. "Competition between private and public schools: testing stratification and pricing predictions," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1215-1245, July.
    12. Jan Schnellenbach, 2004. "The Evolution of a Fiscal Constitution When Individuals are Theoretically Uncertain," European Journal of Law and Economics, Springer, vol. 17(1), pages 97-115, January.
    13. Ron Cheung, 2005. "The Effect of Property Tax Limitations on Residential Private Governments," Working Papers wp2005_05_01, Department of Economics, Florida State University.
    14. Nolan Kopkin, 2012. "Tax Avoidance," Journal of Sports Economics, , vol. 13(6), pages 571-602, December.
    15. Fischer, Justina A.V., 2007. "The Impact of Direct Democracy on Public Education: Evidence for Swiss Students in Reading, Mathematics and Natural Science," SSE/EFI Working Paper Series in Economics and Finance 688, Stockholm School of Economics.
    16. Thomas A. Downes, 2002. "Do state governments matter?: a review of the evidence on the impact on educational outcomes of the changing role of the states in the financing of public education," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 47(Jun), pages 143-180.
    17. Mark M. Glickman & Gary D. Painter, 2004. "Do Tax and Expenditure Limits Lead to State Lotteries? Evidence from the United States: 1970-1992," Public Finance Review, , vol. 32(1), pages 36-64, January.
    18. Angela K. Gore & Yuan Ji & Susan L. Kulp, 2023. "Do Governments Hide Resources from Unions? The Influence of Public Sector Unions on Reported Discretionary Fund Balance Ratios," Journal of Accounting Research, Wiley Blackwell, vol. 61(5), pages 1735-1770, December.
    19. Sungho Park & Craig S. Maher & Carol Ebdon, 2020. "Interlocal Collaboration and Local Fiscal Structure: Do State Incentives Matter?," Public Budgeting & Finance, Wiley Blackwell, vol. 40(2), pages 20-43, June.

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