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A Tragedy of the Anticommons: Local Option Taxation and Cell Phone Tax Bills

33 Pages Posted: 20 Oct 2014 Last revised: 18 Dec 2015

Matthew D. Mitchell

George Mason University - Mercatus Center

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2, 2015

Abstract

When multiple taxing jurisdictions overlap and fail to account for one another’s actions, they over-tax the common base. This is a prediction of the anticommons model, in which numerous parties have authority to exclude others from using a resource. This model further predicts that when governments over-tax the base, private parties will underutilize the resource, and underutilization will be greater as the number of parties with exclusion rights rises. We test these predictions by studying cell phone taxation and local option tax authority, which allows some cities, counties, and special-purpose districts to levy taxes on cell phone use. Consistent with theory, we find that the tax rate on cell phone service is higher when local governments have the option to tax. Further, the percentage of households owning cell phones is lower when there is the local option to tax, and ownership rates fall with the number of taxes levied.

Keywords: anticommons, fiscal federalism, overlapping tax jurisdictions, vertical externalities

JEL Classification: H71, H77, D72

Suggested Citation

Mitchell, Matthew D. and Stratmann, Thomas, A Tragedy of the Anticommons: Local Option Taxation and Cell Phone Tax Bills (December 2, 2015). Public Choice, Forthcoming; GMU Working Paper in Economics No. 15-60. Available at SSRN: https://ssrn.com/abstract=2511802 or http://dx.doi.org/10.2139/ssrn.2511802

Matthew Mitchell (Contact Author)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://meractus.org

Thomas Stratmann

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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