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Jel Classification:H73 

Working Paper
From urban core to wealthy towns: nonschool fiscal disparities across Connecticut municipalities
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.
AUTHORS: Zhao, Bo
DATE: 2015-08-01

Report
Why have revenue-strapped New England school districts been slow to turn to alternative funding sources?
During and even after the Great Recession, numerous popular press stories commented on the apparent growth of non-tax revenues in the face of school district budget deficits. But Downes and Killeen (2014) show that nationally the growth of non-traditional revenues has been far less than these articles may lead the reader to believe. This paper uses data from the New England states to assess the empirical content of some of the possible explanations of this slow growth. In New England, as in the rest of the nation, non-tax revenues per pupil have grown in real terms but have not become a more important source of local revenues. Further analysis of Massachusetts offers equivocal evidence on whether non-tax revenues substitute for or are complements to revenues from overrides of revenue limits. Results from Vermont show that, when the incentives created by a school finance reform are sufficiently strong, districts turn to non-tax revenues in place of property taxes. However, once those incentives are removed, districts shift back to traditional revenues, indicating that districts are not inclined to use alternative revenues as a permanent replacement for property tax revenues.
AUTHORS: Downes, Thomas
DATE: 2016-07-01

Working Paper
Why Haven’t Regional Wages Converged?
Regional wage convergence has long been predicted across the United States as barriers to factor mobility have fallen, yet there is little evidence (apart from a brief period in the 1970s and 1980s) that convergence has actually occurred. Why not? I reexamine this issue by developing a model in which fiscal policy differences across states endogenously impact labor supply across jurisdictions. I find that states whose safety nets are relatively generous will tend to drive out workers, raising wages for those who remain while also prompting net outmigration to less generous states. This suggests that regional wage convergence requires not only free factor mobility but also the coordination of fiscal policy across jurisdictions.
AUTHORS: Saving, Jason L.
DATE: 2017-12-18

Working Paper
Interjurisdictional Competition and Location Decisions of Firms
We examine the welfare properties of alternative regimes of interjurisdictional competition for heterogenous mobile firms. Firms differ not only in terms of the degree of mobility across jurisdictions but also in terms of productivity. Alternative taxation regimes represent restraints on the discretionary powers of taxation of local governments. We find that average welfare is higher under discretionary and more efficient taxation regimes (in the sense of minimizing deadweight losses from distortionary taxation) when firms are highly mobile. In this situation, further limiting competition by imposing a system of non-discretionary instruments can reduce average welfare by reducing the efficiency of the local governments at raising and allocating public funds. When firms face high moving costs, on the other hand, switching to a non-discretionary and less efficient taxation regime may increase welfare by preventing local governments from engaging in excessive redistribution of resources.
AUTHORS: Hernandez-Murillo, Ruben
DATE: 2014-10-01

Working Paper
Unauthorized Immigration and Fiscal Competition
Reflecting upon recent enforcement policy activism of US states and countries within the EU towards unauthorized workers, we examine the overlap of centralized (federal) and decentralized (state or regional) enforcement of immigration policies in a spatial context. Among other results, we find that if interstate mobility is costless, internal enforcement is overprovided, and border enforcement and local goods are underprovided when regions take more responsibility in deciding policies. This leads to higher levels of unauthorized immigration under decentralization. Interregional migration costs moderate such over/underprovision. Moreover, income distributive motives in the host country may shape the design of immigration policies in specific ways. The basic model is extended in several ways. First, we study how the policies change when regions can exclude unauthorized immigrants from the consuming of regionally provided goods or services. Second, we assume that the potential number of unauthorized immigrants is endogenous. And finally, we examine the effect of considering an alternative spatial configuration that includes border and ?interior" regions.
AUTHORS: Bandyopadhyay, Subhayu; Pinto, Santiago
DATE: 2014-10-24

Working Paper
Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation
Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco). While new residents would benefit from housing stock growth in cities with highly productive firms, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general-equilibrium model with endogenous regulation. In the model, households choose from locations that vary exogenously by productivity and endogenously according to local externalities of congestion and sharing. Existing residents address these externalities by voting for regulations that limit local housing density. In equilibrium, these regulations bind and house prices compensate for differences across locations. Relative to the planner's optimum, the decentralized model generates spatial misallocation whereby high-productivity locations are settled at too-low densities. The model admits a straightforward calibration based on observed population density, expenditure shares on consumption and local services, and local incomes. Welfare and output would be 1.4% and 2.1% higher, respectively, under the planner?s allocation. Abolishing zoning regulations entirely would increase GDP by 6%, but lower welfare by 5.9% because of greater congestion.
AUTHORS: Bunten, Devin
DATE: 2017-06

Working Paper
Capitalization as a Two-Part Tariff: The Role of Zoning
This paper shows that the capitalization of local amenities is effectively priced into land via a two-part pricing formula: a ticket" price paid regardless of the amount of housing service consumed and a slope" price paid per unit of services. We first show theoretically how tickets arise as an extensi ve margin price when there are binding constraints on the number of households admitted to a neighborhood. We use a large national dataset of housing transactions, property characte ristics, and neighbor- hood attributes to measure the extent to which local amenities are capitalized in ticket prices vis-a-vis slopes. We find that in most U.S. cities, the majori ty of neighborhood variation in pricing occurs via tickets, although the importance of tickets rises sharply in the stringency of land development regulations, as predicted by theor y. We discuss implications of two-part pricing for efficiency and equity in neighborhood sorting equilibria and for empirical estimates of willingness to pay for non-marketed amenit ies, which generally assume proportional pricing only.
AUTHORS: Banzhaf, H. Spencer; Mangum, Kyle
DATE: 2019-03-21

Working Paper
Not in My Backyard? Not So Fast. The Effect of Marijuana Legalization on Neighborhood Crime
This paper studies the effects of marijuana legalization on neighborhood crime using unique geospatial data from Denver, Colorado. We construct a highly local panel data set that includes changes in the location of marijuana dispensaries and changes in neighborhood crime. To account for endogenous retail dispensary locations, we use a novel identification strategy that exploits exogenous changes in demand across different locations. The change in geographic demand arises from the increased importance of access to external markets caused by a change in state and local policy. The results imply that retail dispensaries lead to reduced crime in the neighborhoods where they are located. Reductions in crime are highly localized, with no evidence of benefits for adjacent neighborhoods. The spatial extent of these effects are consistent with a policing or security response, and analysis of detailed crime categories provides indirect evidence that the reduction in crime arises from a disruption of illicit markets.
AUTHORS: Brinkman, Jeffrey; Mok-Lamme, David
DATE: 2017-07-18

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