TY  - JOUR
AU  - Haughwout,Andrew
AU  - Inman,Robert P.
TI  - Fiscal Policies in Open Cities with Firms and Households
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7823
PY  - 2000
Y2  - August 2000
UR  - http://www.nber.org/papers/w7823
L1  - http://www.nber.org/papers/w7823.pdf
N1  - Author contact info:
Andrew Haughwout
Federal Reserve Bank of New York
33 Liberty Street
New York, NY  10045
E-Mail: andrew.haughwout@ny.frb.org

Robert P. Inman
Department of Finance
Wharton School
University of Pennsylvania
Philadelphia, PA  19104-6367
Tel: 215/898-8299
Fax: 215/898-6200
E-Mail: inman@wharton.upenn.edu
AB  - With the renewed interest in cities as economic centers comes a need to understand how local public services and local taxes are likely to affect city economic performance.  This paper provides an equilibrium model of an open city economy with mobile firms and resident workers. Given household preferences and firm technologies and an exogenous configuration of city tax rates and national grants and fiscal mandates, the model calculates equilibrium values for firm production and input use, household consumption and housing choices, city wages, rents, and population, and finally, local tax bases, revenues, and public goods provision.  The model is calibrated to the Philadelphia economy for FY 1998; model predictions are compared to recent econometric estimates of the effects of city fiscal policy on the Philadelphia private economy.  We then explore two important questions for the city's fiscal future:  What are the economic and fiscal consequences of raising city tax rates?  Can the city shoulder a rising burden of local welfare payments and remain a viable economic center in the long-run?  We find the city to be near the top of its total revenue hill and incapable of bearing significant increases in local responsibility for welfare transfers.
ER  -