Taxes in Cities

76 Pages Posted: 30 Sep 2014

See all articles by Marius Brülhart

Marius Brülhart

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Sam Bucovetsky

York University - Department of Economics

Kurt Schmidheiny

Universität Basel

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Date Written: August 2014

Abstract

Most cities enjoy some autonomy over how they tax their residents, and that autonomy is typically exercised by multiple municipal governments within a given city. In this chapter, we document patterns of city-level taxation across countries, and we review the literature on a number of salient features affecting local tax setting in an urban context. Urban local governments on average raise some ten percent of total tax revenue in OECD countries and around half that share in non-OECD countries. We show that most cities are highly fragmented: urban areas with more than 500,000 inhabitants are divided into74 local jurisdictions on average. The vast majority of these cities are characterized by a central municipality that strongly dominates the remaining jurisdictions in terms of population. These empirical regularities imply that an analysis of urban taxation needs to take account of three particular features: interdependence among tax-setting authorities(horizontally and vertically), jurisdictional size asymmetries, and the potential for agglomeration economies. We survey the relevant theoretical and empirical literatures, focusing in particular on models of asymmetric tax competition, of taxation and income sorting and of taxation in the presence of agglomeration rents.

Keywords: agglomeration, cities, fiscal federalism, local taxation, population sorting, tax competition

JEL Classification: H71, H73, R28, R51

Suggested Citation

Brulhart, Marius and Bucovetsky, Sam and Schmidheiny, Kurt, Taxes in Cities (August 2014). CEPR Discussion Paper No. DP10114, Available at SSRN: https://ssrn.com/abstract=2501586

Marius Brulhart (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 692 3471 (Phone)
+41 21 692 3365 (Fax)

HOME PAGE: http://www.hec.unil.ch/mbrulhar/

Sam Bucovetsky

York University - Department of Economics ( email )

4700 Keele St.
Toronto, Ontario M3J 1P3
Canada

Kurt Schmidheiny

Universität Basel ( email )

Wirtschaftswissenschaftliche Fakultät
Peter Merian-Weg 6
Basel, CH-4002
Switzerland

HOME PAGE: http://wwz.unibas.ch/schmidheiny/

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