Panel Paper: Spatial Implications of Tax and Expenditure Limitations in Times of Austerity

Saturday, November 9, 2013 : 8:40 AM
Georgetown I (Washington Marriott)

*Names in bold indicate Presenter

Marvin Ward, American University
Fiscal analysts have long been concerned with the impact of tax and expenditure limitations on the distribution of discretionary authority across subnational governments.  This is a natural consequence of the prevailing view of fiscal structure that finds its roots in Musgrave (Musgrave 1959), Tiebout (Tiebout 1956), and Oates (Oates 1972) .  The common theme across these works is a focus on matching the supply of public services with demand at the local level as a vehicle for increasing social welfare. 

In the abstract, TELs disrupt this matching process by erecting institutional obstacles that are politically difficult to circumvent.  If TELs force shifts in fiscal behavior then mitigation strategies are, by construction, suboptimal.  In practice, TELs have increased centralization while reducing local responsiveness. (Mullins and Joyce 1996)  These impacts vary dramatically based upon the socioeconomic characteristics of the jurisdiction in question (Mullins 2004; Brown 2000) and the structure of the TEL.  TELs have also forced a partial shift in relative importance away from property tax revenue (Brown 2000), a critical tool for local autonomy. (Sokolow 1998)  Fees and charges have increased to fill the gap in own source revenue. (Joyce and Mullins 1991)  With respect to expenditure responsibility, binding measures increase the role of the state government in providing local services (Skidmore 1999), an explicit manifestation of reductions in local autonomy.  Horizontal shifts in expenditure assignment have occurred as well, as indicated by the increased reliance on special districts for service provision. (Carr 2006)

In general, these consequences are indicative of a convergence process.  By reducing revenue options and, in turn, achievable service delivery, TELs appear to be diminishing the capacity of local governments to differentiate themselves from one another.  The existing literature, however, does not consider the long run spatial linkages that bind proximate economic and political activity.  Because aforementioned inquiries have not been designed to account for these dynamic linkages, they miss reinforcing feedback which can add dimensionality to the convergence process.  Convergence is likely to be strong for given subsets of jurisdictions, but if these convergence processes point in opposite directions, looking for convergence across the entire set will yield an understated TEL impact.  Much of this behavior is a consequence of TELs having asymmetric impacts across jurisdictions.

This study utilizes a TEL stringency index to identify these convergence “pockets” and evaluates the differences between them.  Using Census data (Government Finance Survey, USA Counties, and TIGER shapefiles), state-level statutes, and local override information, clustering analysis and spatial regression are used to determine the expenditure profile convergence impacts of the Taxpayer Bill of Rights in Colorado and Proposition 2 ½ in Massachusetts.  The author posits that while convergence will occur across jurisdictions that are similarly constrained by TELs (via the stringency index), divergence will characterize the relationship between jurisdictions that are not similarly constrained.

Full Paper: