Goodspeed, Timothy (1998): The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey. Published in: National Tax Journal , Vol. 51, No. 2 (1998): pp. 219-238.
Download (226kB) | Preview
Abstract - New Jersey enacted an income tax in 1976 in response to a State Supreme Court ruling that held that local taxation alone violated the requirement of the State Constitution that all children receive a “thorough and efficient” education. The law required that revenues from the income tax be dedicated solely to relief of local property taxes. Most of the relief is given as aid to local school districts. This paper offers both a theoretical and an empirical analysis of the effect on local property taxes of changes in aid resulting from the 1990 increase in the income tax enacted under Governor Jim Florio and the beginning of the 1994 decrease in income taxes enacted under Governor Christine Whitman. The theoretical analysis is based on general equilibrium models developed over the previous two decades. The results indicate (1) a flypaper effect for both increases and decreases in aid, which may be more pronounced for decreases, and (2) that higher income districts choose to increase property taxes more than other districts when the income tax is reduced.
|Item Type:||MPRA Paper|
|Original Title:||The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey|
|Keywords:||education finance, grants, federalism, flypaper effect|
|Subjects:||H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations
H - Public Economics > H5 - National Government Expenditures and Related Policies > H52 - Government Expenditures and Education
|Depositing User:||Timothy Goodspeed|
|Date Deposited:||14. Mar 2011 21:14|
|Last Modified:||13. Feb 2013 09:08|
Bogart, William T., David Bradford, and Michael Williams. “Incidence Effects of a State Fiscal Policy Shift: The Florio Initiatives in New Jersey.” National Tax Journal 45 No. 4 (December, 1992): 371–87.
Bradford, David, and Wallace E. Oates. “An Analysis of Revenue-Sharing in a New Approach to Collective Fiscal Decisions.” Quarterly Journal of Economics 85 No. 3 (August, 1971): 416–39.
Chernick, Howard. “An Economic Model of the Distribution of Project Grants.” In Fiscal Federalism and Grants-in-Aid, edited by Peter Mieszkowski and William Oakland. Washington, D.C.: The Urban Institute, 1979.
Courant, Paul, Edward Gramlich, and Daniel Rubinfeld. “The Stimulative Effects of Intergovernmental Grants: or Why Money Sticks Where it Hits.” In Fiscal Federalism and Grants-in-Aid, edited by Peter Mieszkowski and William Oakland. Washington, D.C.: The Urban Institute, 1979.
De Bartolome, Charles A. M. “What Determines State Aid to School Districts? A Positive Model of Foundation Aid as Redistribution.” Journal of Policy Analysis and Management 16 No. 1 (Winter, 1997): 32–47.
Epple, Dennis, Radu Filimon, and Thomas Romer. “Equilibrium among Jurisdictions: Toward an Integrated Treatment of Voting and Residential Choice.” Journal of Public Economics 24 No. 3 (August, 1984): 281–308.
Epple, Dennis, and Richard Romano. “Ends Against the Middle: Determining Public Service Provision when there are Private Alternatives.” Journal of Public Economics 62 No. 3 (November, 1996): 297–325.
Epple, Dennis, and Thomas Romer. “Mobility and Redistribution.” Journal of Political Economy 99 No. 4 (August, 1991): 828–58.
Fernandez, Raquel, and Richard Rogerson. “Education Finance Reform: A Dynamic Perspective.” Journal of Policy Analysis and Management 16 No. 1 (Winter, 1997): 67–84.
Filimon, Radu, Thomas Romer, and Howard Rosenthal. “Asymmetric Information and Agenda Control: The Bases of Monopoly Power in Public Spending.” Journal of Public Economics 17 No. 1 (February, 1982): 51–70.
Fischel, William A. “Fiscal and Environmental Considerations in the Locations of Firms in Suburban Communities.” In Fiscal Zoning and Land Use Controls: The Economic Issues, edited by Edwin S. Mills and Wallace Oates. Lexington, MA: Heath–Lexington Books, 1975.
Fischel, William A. “Did Serrano Cause Proposition 13?” National Tax Journal 42 No. 4 (December, 1989): 465–73.
Fisher, Ronald “A Theoretical View of Revenue Sharing Grants.” National Tax Journal 32 No. 2 (June, 1979): 173–84.
Fisher, Ronald. “Income and Grant Effects on Local Expenditure: The Flypaper Effect and Other Difficulties.” Journal of Urban Economics 12 No. 3 (November, 1982): 324–45.
Gamkar, Shama, and Wallace Oates. “Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings.” National Tax Journal 49 No. 4 (December, 1996): 501–11.
Goodspeed, Timothy J. “A Re-Examination of the Use of Ability to Pay Taxes by Local Governments.” Journal of Public Economics 38 No. 3 (April, 1989): 319–42.
Goodspeed, Timothy J. “Local Income Taxation: An Externality, Pigouvian Solution, and Public Policies.” Regional Science and Urban Economics 25 No. 3 (June, 1995): 279–96.
Gramlich, Edward. “Federalism and Federal Deficit Reduction.” National Tax Journal 40 No. 3 (September, 1987): 299–313.
Gramlich, Edward, and Harvey Galper. “State and Local Fiscal Behavior and Federal Grant Policy.” Brookings Papers on Economic Activity 1 (1973): 15–58.
Hines, James R., Jr., and Richard Thaler. “The Flypaper Effect.” Journal of Economic Perspectives 9 No. 4 (Fall, 1995): 217–26.
Holtz-Eakin, Douglas. “Unobserved Tastes and the Determination of Municipal Services.” National Tax Journal 39 No. 4 (December, 1986): 527–32.
Hoxby, Caroline M. “All School Finance Equalizations are not Created Equal: (Marginal Tax Rates Matter).” Harvard University. Unpublished manuscript, 1996.
Hoxby, Caroline M. “How to Do (and not to Do) School Finance Equalization: The Legacy and Lessons of Serrano.” Proceedings of the National Tax Association, 1996. Washington, D.C.: National Tax Association, 1997.
Ladd, Helen. “Local Education Expenditure, Fiscal Capacity, and the Composition of the Property Tax Base.” National Tax Journal 28 No. 2 (June, 1975): 145–58.
Leyden, Dennis P. “Court-Mandated Changes in Educational Grant Structure.” Public Finance 47 No. 2 (1992): 229–47.
Merriman, David. The Control of Municipal Budgets. New York: Quorum Books, 1987.
Nechyba, Thomas. “Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion.” Journal of Political Economy 105 No. 2 (April, 1997): 351–84.
New Jersey Department of Education. Budget Guidelines and Cap Waiver Procedures. Trenton: Division of Information, Management, and Financial Services, 1995.
Oates, Wallace E. “Lump-Sum Intergovernmental Grants Have Price Effects.” In Fiscal Federalism and Grants-in-Aid, edited by Peter Mieszkowski and William Oakland. Washington, D.C.: The Urban Institute, 1979.
Oates, Wallace E. “Federalism and Government Finance.” In Modern Public Finance, edited by John M. Quigley and Eugene Smolensky. Cambridge: Harvard University Press, 1994.
Romer, Thomas, and Howard Rosenthal. “Bureaucrats Versus Voters: On the Political Economy of Resource Allocation by Direct Democracy.” Quarterly Journal of Economics 93 No. 4 (November, 1979): 563–87.
Romer, Thomas, and Howard Rosenthal. “An Institutional Theory of the Effect of Intergovernmental Grants.” National Tax Journal 33 No. 4 (December, 1980): 451–58.
Ross, Stephen, and John Yinger. “Sorting and Voting: A Review of the Literature on Urban Public Finance.” Metropolitan Studies Program Series Occasional Paper No. 170. Syracuse: Metropolitan Studies Program, 1995.
Silva, Fabio, and Jon Sonstelie. “Did Serrano Cause a Decline in School Spending?” National Tax Journal 48 No. 2 (June, 1995): 199–215.
Stine, William F. “Is Local Government Revenue Response to Federal Aid Symmetrical? Evidence from Pennsylvania County Governments in an Era of Retrenchment.” National Tax Journal 47 No. 4 (December, 1994): 799–816.
Westhoff, Frank. “Existence of Equilibria in Economies with a Local Public Good.” Journal of Economic Theory 14 No. 1 (February, 1977): 84– 112.