A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures

17 Pages Posted: 9 Mar 2004

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: February 1983

Abstract

In the United States, local government expenditures are heavily subsidized through a variety of sources. This paper explores theoretically and then simulates empirically the effects of eliminating either of two federal subsidies encouraging local government expenditures: (1) income tax deductibility of local tax payments, and (2) the tax exempt status of interest on municipal bonds.We find that eliminating the deductibility of local taxes raises the utility of all income groups, and of home owners as well as of renters.Making interest on municipal bonds taxable, however, substantially hurts the very rich, who lose a tax shelter, and may hurt the very poor, who pay more for municipal services. While most people gain, the net gain is very small.

Suggested Citation

Gordon, Roger H. and Slemrod, Joel B., A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures (February 1983). NBER Working Paper No. w1080. Available at SSRN: https://ssrn.com/abstract=304808

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

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734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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United States

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