Public Finance Review

Studies of tax incidence usually present estimates based on annual data and then simply note that estimates based on lifetime information would be preferable but are precluded by data limitations. This article presents estimates of property tax incidence in both an annual and a life-cycle framework. Under various shifting assumptions, the property tax appears less regressive in a lifetime sense than an annual one. It also appears that transitory influences on measured income may be more important than life-cycle issues in causing annual and lifetime tax incidence profiles to differ .

This article compares the effects of two policies aimed at promoting efficiency in the taxation of alcoholic beverages. One policy is to set alcohol tax rates at a level that corrects for excessive social costs of alcohol consumption. The second is to view alcohol taxes as a substitute for other taxes and apply the prescriptions of optimal tax theory to attain the efficient mix of tax revenues. Estimates of the differential effects of the two policies suggest that the second policy requires a higher tax rate on alcohol and produces a greater welfare gain.

This article discusses the distortive effect of the federal income tax on the efficiency of resource allocation within and between cities. This distortion shifts production to the smaller and less productive cities from the larger and more productive cities. To eliminate these distortive effects, a city-size deduction should be applied. The underlying assumption is that cities differ from one another in labor productivity Consequently, in equilibrium, the size, the nominal income, and the price of housing vary across cities. When a uniform income tax rate is used for financing federal expenditure, the shadow price of housing exceeds the market price in the larger cities, indicating that the stock of housing is too small and the per-capita housing consumption is too large. The opposite is true in small cities, where also, if housing and the LPG (local public good) are net substitutes, the provision of the LPG is excessive. The article also discusses the effects of federal corporate profit taxes, which are shown to discourage the supply of the LPG, and shows that a net land rent tax is not always a feasible tax instrument capable of raising the predetermined tax revenue.

In the traditional certainty model of voter fiscal illusion, voters misperceive non-stochastic tax prices as being lower than they actually are and therefore allow public sector officials to expand output beyond the perfect information output. This article shows how modeling fiscal illusion as imperfect voter information or uncertainty introduces an additional risk term that offsets the certainty model illusion-output expansion effect. The fiscal illusion-output expansion hypothesis is evaluated by empirically examining the impact of fiscal structure complexity, both with respect to sources and uses of revenues, on public expenditure demand. In keeping with the uncertainty model of fiscal illusion, the data reveal little support for the illusion-output expansion hypothesis.

Using a dynamic optimization model in which the rate of time preference is endogenously determined by a household's aggregate utility, it is demonstrated that variability in labor supply has a significant effect on the long-run incidence of a capital income tax. It is demonstrated that if there is a marginal increase in the capital income tax rate, the tax burden is shared in some proportion by both capital and labor, with capital's share of the tax burden increasing with increasing elasticity of labor supply. This is in contrast with earlier results that showed that the elasticity of labor supply has no effect on the long-run incidence of a factor tax.

This article presents a median voter model to explain the expenditures on recreation by local governments. The authors show that when the benefits of a public good provided by one community can spill over to members of other communities the correct empirical specification is a spatially autoregressive econometric model With respect to local recreation, it was found that communities with relatively high incomes and air pollution spend relatively less on provision.