AN ECONOMIC EVALUATION OF STATE LIMITATIONS ON LOCAL TAXING AND SPENDING POWERS

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Abstract
This paper analyzes and evaluates from an economic perspective expenditure limitation and property tax relief as motivations for the recent resurgence of interest in state imposed controls on local taxing and spending powers. A systematic analysis of the possible causes of excess local spending leads to the conclusion that the benefits from expenditure restriction are likely to be limited while the costs are potentially significant. A partial adjustment model of the local public sector expenditure process shows that in some cases temporary controls may be justified as a supplement to new state aid intended for property tax relief.

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