Local property and state income taxes: The role of interjurisdictional competition and collusion

This paper addresses two long-standing positive questions in public finance: (i) Why is the property tax, despite widespread popular complaints against its fairness, the almost exclusive tax instrument used by local governments, and (ii) why do we consistently observe higher levels of governments (states) undermining local property tax systems through income tax-funded grants and state-imposed caps on local property tax rates? A new intuitive argument to explain question i is presented and tested in simulations using a computable general equilibrium model with parameters set to be consistent with New Jersey data. Both the intuitive argument and the simulation results indicate that setting local income tax rates to zero is a dominant strategy for community planners. When faced with popular sentiment against the property tax, community planners can collude and introduce local income taxes simultaneously to prevent adverse general equilibrium migration and price changes. Since zero income tax rates are dominant strategies, however, such an agreement is enforceable only if an outsider such as the state government steps in. The institution of state grants funded through a state income tax can play such an enforcement role

What can be (and what has been) learned from general equilibrium simulation models of school finance?

This paper synthesizes some initial lessons from an emerging school finance literature that employs computational structural models to investigate different policy proposals. The advantage of such models lies in their ability to fully trace out the general equilibrium effects of policies within an internally consistent and empirically relevant economic framework. Results in this literature suggest that a full general equilibrium analysis may lead to outcomes that differ substantially from those predicted by partial equilibrium models. At the same time, there is considerable room for further research that can both inform and be informed by more standard empirical research

What accounts for international differences in student performance? A re-examination using PISA data

Education production function, PISA, International variation in student performance, Institutional effects in schooling, I28, J24, H52, L33,

Free education, fertility and human capital accumulation

Free public education, Private education, Fertility, Human capital, I2, J1, O1,