33 Pages Posted: 20 Oct 2014 Last revised: 18 Dec 2015
Date Written: December 2, 2015
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: 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