Making Mountains of Debt Out of Molehills: The Pro-Cyclical Implications of Tax and Expenditure Limitations

Authors

Mathew D. McCubbins, Duke Law SchoolFollow
Ellen Moule

Document Type

Article

Publication Date

2010

Keywords

taxes, tax and expenditure limits, revenue, state and local government

Abstract

This paper presents evidence that property tax limits have detrimental effects on state and local revenues during recessions. Property tax limits cause states to rely on income–elastic revenue sources, such as the income tax or charges and fees. Greater reliance on these revenue sources results in greater revenue declines during economic downturns. We present analysis of time–series, cross–sectional data for the U.S. states for each of these conclusions. Our results suggest that states would have fewer and more modest financial problems during economic downturns if they did not enact property tax limitations.

Comments

This is an article pre-print.

Citation

Mathew D. McCubbins & Ellen Moule, Making Mountains of Debt Out of Molehills: The Pro-Cyclical Implications of Tax and Expenditure Limitations, 63 National Tax Journal 603-621 (2010)