TY  - JOUR
AU  - Holtz-Eakin,Douglas
AU  - Rosen,Harvey S.
TI  - Tax Deductibility and Municipal Budget Structure
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2224
PY  - 1987
Y2  - April 1987
UR  - http://www.nber.org/papers/w2224
L1  - http://www.nber.org/papers/w2224.pdf
N1  - Author contact info:
Douglas Holtz-Eakin
American Action Forum
1401 New York Ave, NW
Suite 1200
Washington, DC 20005
E-Mail: dholtzeakin@americanactionforum.org

Harvey S. Rosen
Department of Economics
Fisher Hall
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-4022
Fax: 609/258-6419
E-Mail: HSR@princeton.edu
AB  - This paper investigates the effects of deductibility of local taxes on communities' budgetary decisions. Our focus is on how changes in the tax price of local spending induced by deductibility affect the mix between deductible and nondeductible revenue sources, and on expenditures. The econometric analysis is based on a rich data set that tracks the fiscal behavior of 172 local governments from 1978 to 1980. We find that the elasticity of deductible taxes with respect to the tax price is in the range -1.2 to -1.6; the tax price has no statistically significant effect on the use of nondeductible revenue sources; and the elasticity of local expenditures with respect to the tax price is about -1.8. Hence, if deductibility were eliminated, we would expect to see a substantial decline in local government spending.
ER  -