On The Effects of Local Versus Central Government Financing of Local Services
This paper provides some empirical support for pricing a part of local services on user basis. A model of fiscal responses to grants/user fees, based on a vote-maximizing approach, is tested on both time series and pooled data (1977-1991) for 39 upper-tier municipalities in Ontario, Canada. The exogeneity specification of grants is tested and the test results are taken into account in estimating the model. The results indicate that roughly 70 percent of the municipal governments would find it cheaper to finance local spending by grants than by local taxation. If the grant system is abolished, a majority of these governments would prefer to use some sort of user fees in financing local services. The study suggests that local public services can be provided at a substantially lower per-unit cost if some selected services are priced on user basis.
A positive model of tax structure
The model of tax structure developed in this paper is one in which the composition of revenues and the structure of specific taxes arise ‘naturally’ as the result of self-interested political behavior. It is assumed that political agents choose tax structure so as to minimize the political costs (or expected net loss in votes) associated with raising a budget of given size. Several hypotheses concerning the nature of political cost functions are developed and applied to an explanation of the differences among U.S. states in their reliance on income taxation. The empirical application emphasizes differences in political constraints across jurisdictions in the belief that much can be learned about the choice of policy instruments by studying structural adjustments in response to varying constraints. The paper discusses how the proposed approach differs from or is consistent with that adopted by other authors, and how the estimating equation relates to other empirical research in the literature.
Government Exactions and Revenue Deficiencies
The proposition that increases in tax rates discourage market- sector production and may therefore, beyond a certain level, be counterproductive in raising tax revenue is an old issue in the eco- nomic literature. Its recent revival has generated considerable con- troversy and interest among both economists and policy makers. The resolution of this controversy depends on identifying the em- pirical relationship between changes in tax rates and changes in economic activity and, hence, in tax revenue. As yet, however, this relationship has been the subject of little systematic empirical analysis....