This Article Abstract Free Full Text (Free PDF) Free Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Similar articles in Web of Science Alert me to new issues of the journal Add to Saved Citations Download to citation manager Request Permissions Request Reprints Add to My Marked Citations Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Citing Articles via Scopus Google Scholar Articles by Hendrick, R. Articles by Jacob, B. Search for Related Content Social Bookmarking                         What's this?

Tax Competition Among Municipal Governments

Exit Versus Voice

University of Illinois at Chicago, hendrick{at}uic.edu

Yonghong Wu

University of Illinois at Chicago

Benoy Jacob

University of Illinois at Chicago

This research examines the incidence of property and sales tax competition among municipal governments in the Chicago metropolitan region and investigates whether the underlying mechanism is exit or voice. First, the research estimates a model with a spatial lag component that relates each municipality's tax or revenue burden to that of its neighbors, controlling for other factors. The results show that tax competition exists for property taxes, which suggests that the competition is based on voice rather than exit. Second, assessment of preferences and attitudes toward sales and property taxes and competition also demonstrates the importance of voice in establishing tax rates and levies.

Key Words: tax competition • municipal government

References

• Anselin, Luc. 1988. Spatial econometrics: Methods and models. Boston: Kluwer Academic Publishers.
• ———. 1992. SpaceStat: A program for the analysis of spatial data. Morgantown, WV: Regional Research Institute.
• Anselin, Luc, and Anil Bera. 1998. Spatial dependence in linear regression models with an introduction to spatial econometrics, in Handbook of applied economic statistics, edited by A. Ullah and D. Giles, 237-89. New York: Marcel Dekker).
• Besley, Timothy, and Anne Case. 1995. Incumbent behavior: Vote seeking, tax setting, and yardstick competition. American Economic Review 85 (1): 25-45.[Web of Science]
• Boyne, George A. 1996. Competition and local government: A public choice perspective. Urban Studies 33(4-5): 703-21.
• Brueckner, Jan K. 2003. Strategic interaction among governments: An overview of empirical studies. International Regional Science Review, 26(2): 175-188.[Abstract]
• Brueckner, Jan K., and Luz A. Saavedra. 2001. Do local governments engage in strategic property-tax competition? National Tax Journal 54 (2): 203-29.
• Case, Anne. 1993. Interstate tax competition after TRA86. Journal of Policy Analysis and Management 12 (1): 136-48.[CrossRef][Web of Science]
• Case, Anne C., Harvey S. Rosen, and James R. Hines Jr. 1993. Budget spillovers and fiscal policy interdependence: Evidence from the states. Journal of Public Economics 52 (3): 285-307.[CrossRef][Web of Science]
• Clark, Terry N., and Lorna C. Ferguson. 1983. City money: Political processes, fiscal strain and retrenchment. New York: Columbia Univ. Press.
• Cliff, Andrew, and John K. Ord. 1981. Spatial processes: Models and applications. London: Pion.
• Dacey, Michael. 1968. A review of measures of contiguity for two and k-color maps. In Spatial analysis: A reader in statistical geography, edited by B. Berry and D. Marble, 479-95. Englewood Cliffs, NJ: Prentice-Hall.
• Dahlby, Bev, Robert Henry, Michael Keen, and David E. Wildasin. 2000. Recent developments in tax coordination: A panel discussion. Canadian Tax Journal 48 (2): 389-439.
• Dollery, Brian E., and Andrew C. Worthington. 1996. The empirical analysis of fiscal illusion. Journal of Economic Surveys 10 (3): 261-97.[CrossRef]
• Dowding, Keith, Peter John, and Stephen Biggs. 1994. Tiebout: A survey of the empirical literature. Urban Studies 31 (4/5): 767-97.
• Dowding, Keith, Peter John, Thanos Mergroupis, and Mark Van Vugt. 2000. Exit, voice, and loyalty: Analytic and empirical developments. European Journal of Political Research, 37 (4): 469-95.[Web of Science]
• Haiyashi, M., and R. Boadway. 2001. An empirical analysis of intergovernmental tax interaction: The case of business income taxes in Canada. Canadian Journal of Economics 34:481-503.[CrossRef]
• Hendrick, Rebecca. 2002. Revenue diversification: Fiscal illusion or flexible financial management. Public Budgeting and Finance 22 (4): 52-72.[CrossRef]
• ———. 2004. Assessing and measuring the fiscal health of local governments: Focus on Chicago suburban municipalities. Urban Affairs Review 40 (1): 78-114.[Abstract]
• Hettich, Walter, and Stanley Winer. 1997. The political economy of taxation. In Perspectives on public choice, edited by D. Mueller, 481-503. Cambridge, UK: Cambridge Univ. Press.
• Heyndels, Bruno, and Jef Vuchelen. 1998. Tax mimicking among Belgian municipalities. National Tax Journal 51 (1): 89-101.
• Hirschman, Albert O. 1970. Exit, voice, loyalty: Responses to declines in firms, organizations, and states. Cambridge, MA: Harvard Univ. Press.
• Kelejian, Harry H., and Ingmar R. Prucha. 2002. 2SLS and OLS in spatial autoregression model with equal spatial weights. Regional Science and Urban Economics 32:691-707.[CrossRef][Web of Science]
• Kenyon, Daphne. 1997. Theories of interjurisdictional competition. New England Economic Review 97 (2): 13-35
• Ladd, Helen F. 1992. Mimicking of local tax burdens among neighboring counties. Public Finance Quarterly 20 (4): 450-67.[CrossRef][Web of Science]
• Lyons, William E., and David Lowery. 1986. The organization of political space and citizen responses to dissatisfaction in urban communities: An integrative model. Journal of Politics 48 (2): 321-46.[CrossRef][Web of Science]
• ———. 1989. Citizen responses to dissatisfaction in urban communities: A partial test of a general model. The Journal of Politics 51 (4): 841-68[CrossRef]
• Oates, Wallace. 1972. Fiscal federalism. New York: Harcourt Brace Jovanovich.
• Oates, Wallace E. 1969. The effects of property taxes and local public spending on property values: An empirical study of tax capitalization and the Tiebout hypothesis. Journal of Political Economy 77 (6): 957-71[CrossRef][Web of Science]
• Oates, Wallace, and Robert M. Schwab. 1991. The allocative and distributive implications of local fiscal competition. In Competition among states and local governments: Efficiency and equity in American federalism, edited by D. Kenyon and J. Kincaid, 127-145. Washington, DC: Urban Institute Press.
• Oliver, Eric J. 2001. Democracy in suburbia. Princeton, NJ: Princeton Univ. Press.
• Orbell, John M., and Toro Uno. 1972. A theory of neighborhood problem-solving: Political action vs. residential mobility. American Political Science Review 66 (2): 471-89.[CrossRef][Web of Science]
• Orfield, Myron. 1998. Metropolitics: A regional agenda for community and stability. Washington, DC: Brookings Institution.
• Revelli, Frederico. 2001. Spatial patterns in local taxation: Tax mimicking or error mimicking? Applied Economics 33 (9): 1101-7.[CrossRef][Web of Science]
• ———. 2002. Testing the tax mimicking versus expenditure spill-over hypotheses using English data. Applied Economics, 34 (14): 1723-31.[CrossRef][Web of Science]
• Rork, Jonathan C. 2003. Coveting thy neighbors' taxation. National Tax Journal 56 (4): 775-87.
• Rusbult, C.E., I.M. Zembrodt, and L.K. Gunn. 1982. Exit, voice, loyalty and neglect: Responses to dissatisfaction in romantic involvements. Journal of Personality and Social Psychology 43 (6): 1230-42.[CrossRef][Web of Science]
• Rusk, David. 1995. Cities without suburbs. Washington, DC: Woodrow Wilson Center.
• Salmon, Pierre. 1987. Decentralization as an incentive scheme. Oxford Review of Economic Policy 3 (2): 24-43.[Medline] [Order article via Infotrieve]
• Schneider, Mark. 1989. The competitive city: The political economy of suburbia. Pittsburgh, PA: Univ. of Pittsburgh Press.
• Sharp, Elaine B. 1984. Exit, voice, and loyalty in the context of local government. Western Political Quarterly 37 (1): 67-83.[CrossRef][Web of Science]
• Stein, Robert M. 1987. Tiebout's sorting hypothesis. Urban Affairs Quarterly 23 (1): 140-60.
• Tiebout, Charles M. 1956. A pure theory of local expenditure. Journal of Political Economy 64:416-24.[CrossRef][Web of Science]
• Wilson, John Douglas. 1999. Theories of tax competition. National Tax Journal 52 (2): 269-304.
• Yinger, John, Axel Borsch-Supan, Howard Bloom, and Helen F. Ladd. 1988. Property taxes and house values: The theory and estimation of intrajurisdictional property tax capitalization. San Diego, CA: Academic Press.
• U.S. Bureau of the Census. 1999. 1997 census of governments: Government organization, vol 1. Washington, DC: Bureau of the Census.

Urban Affairs Review, Vol. 43, No. 2, 221-255 (2007)
DOI: 10.1177/1078087407305312


CiteULike    Complore    Connotea    Del.icio.us    Digg    Reddit    Technorati    Twitter    What's this?

This article has been cited by other articles:

				Y. Wu and R. Hendrick Horizontal and Vertical Tax Competition in Florida Local Governments Public Finance Review, May 1, 2009; 37(3): 289 - 311. [Abstract] [PDF]

This Article Abstract Free Full Text (Free PDF) Free Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Similar articles in Web of Science Alert me to new issues of the journal Add to Saved Citations Download to citation manager Request Permissions Request Reprints Add to My Marked Citations Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Citing Articles via Scopus Google Scholar Articles by Hendrick, R. Articles by Jacob, B. Search for Related Content Social Bookmarking                         What's this?