Working Paper

From urban core to wealthy towns: nonschool fiscal disparities across Connecticut municipalities

Abstract: Fiscal disparities occur when economic resources and public service needs are unevenly distributed across localities. There are two equity concerns associated with fiscal disparities. First, as Yinger (1986) shows, it is not considered fair to require two otherwise-identical households to pay a different amount of taxes for the same level of public services simply because they live in different towns. Second, fiscal disparities render some towns at a disadvantage in economic competition (Downes and Pogue 1992). These towns must impose a higher tax rate and/or provide a lower level of public services, making them less attractive to private businesses and residents. Using a cost-capacity gap framework and a newly assembled dataset of local financial records, this paper is the first study to quantify nonschool fiscal disparities across Connecticut municipalities. Municipal gap is defined as the difference between municipal cost and municipal capacity. A positive gap indicates greater need (measured by the cost to fund the common nonschool services) than capacity, while a negative gap indicates more capacity than need.

Keywords: fiscal disparities; state grants; municipal cost; municipal gap; revenue-raising capacity; property tax;

JEL Classification: H20; H73; H72; H71; H83; H70; H77;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2015-08-01

Number: 15-14

Pages: 45 pages