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Local Taxes, Public Services, and the Intrametropolitan Location of Firms and Households

Local Taxes, Public Services, and the Intrametropolitan Location of Firms and Households This work examines the effects of local public sector tax and spending decisions onthe intrametropolitan location of jobs and workers. Municipality-level data for theentire Philadelphia metropolitan area are used to estimate a two equation partialadjustment model of firm and household location. Effective local property andincome tax rates and spending data for three (exhaustive) service categories areincluded. The model is estimated for total employment and six sectors The findingsimply that employment location is more sensitive to local government activities thanis household location. Firms m most sectors react to both tax and spending policies.The effects on employment of local tax increases can be partially offset if the highertaxes supplement particular types of spending. However, differences across sectorsimply that the net effect on total employment will be negative except in very specialcircumstances. Household behavior, on the other hand, is affected only by schoolspending. The findings also imply that models based on highly aggregated measuresof employment or economic activity understate the speed of adjustment of the system,resulting in overstated estimates of long-run tax and spending effects. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Public Finance Quarterly SAGE

Local Taxes, Public Services, and the Intrametropolitan Location of Firms and Households

Luce, Thomas F.
Public Finance Quarterly , Volume 22 (2): 29 – Apr 1, 1994
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References (32)

Publisher
SAGE
Copyright
Copyright © by SAGE Publications
ISSN
0048-5853
DOI
10.1177/109114219402200201
Publisher site
See Article on Publisher Site

Abstract

This work examines the effects of local public sector tax and spending decisions onthe intrametropolitan location of jobs and workers. Municipality-level data for theentire Philadelphia metropolitan area are used to estimate a two equation partialadjustment model of firm and household location. Effective local property andincome tax rates and spending data for three (exhaustive) service categories areincluded. The model is estimated for total employment and six sectors The findingsimply that employment location is more sensitive to local government activities thanis household location. Firms m most sectors react to both tax and spending policies.The effects on employment of local tax increases can be partially offset if the highertaxes supplement particular types of spending. However, differences across sectorsimply that the net effect on total employment will be negative except in very specialcircumstances. Household behavior, on the other hand, is affected only by schoolspending. The findings also imply that models based on highly aggregated measuresof employment or economic activity understate the speed of adjustment of the system,resulting in overstated estimates of long-run tax and spending effects.

Journal

Public Finance Quarterly – SAGE

Published: Apr 1, 1994

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