Making Mountains of Debt Out of Molehills: The Pro-Cyclical Implications of Tax and Expenditure Limitations
Mathew D. McCubbins
Lewis & Clark College
May 18, 2010
This paper presents evidence that property tax limits have detrimental effects on state and local revenues during recessions. Property tax limits cause states to rely on income-elastic revenue sources, such as the income tax or charges and fees. Greater reliance on these revenue sources results in greater revenue declines during economic downturns. We present analysis of time-series, cross-sectional data for the U.S. states for each of these conclusions. Our results suggest that states would have fewer and more modest financial problems during economic downturns if they did not enact property tax limitations.
Number of Pages in PDF File: 28
Keywords: tax and expenditure limits, tax elasticity, state and local revenue policy
JEL Classification: H20, H71
Date posted: May 19, 2010
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