Public Choice of Tax and Regulatory Instruments—The Role of Heterogeneity

Abstract

In the authors' political equilibrium model, regulation is considered an implicit and regressive tax-equivalent alternative to the common and less regressive fiscal alternatives: income, property, and sales taxes. The authors hypothesize that in more heterogeneous jurisdictions the state relies more on regulation and less on budgetary spending than in more homogeneous units. Using data drawn from U.S. state-level environmental policy from 1980 to 1994, the authors confirm this hypothesis.