The elusive fiscal commons: Examining fiscal interaction among overlapping governments

Lang K. Yang, Jinhai Yu and Xin Chen

Public Budgeting & Finance, 2025, vol. 45, issue 2, 3-44

Abstract: Vertically overlapping governments share the same tax base, which may generate fiscal spillovers in tax, spending, or debt decisions. Various studies have tested the fiscal commons effect in this context, though the findings remain inconclusive. This paper uses a regression discontinuity design to address empirical challenges in fiscal spillover research. We focus on bond referendums of Texas cities, counties, school districts, and water districts and identify the effect of exogenous increases in debt and property taxes induced by successful bond measures. We find no evidence of spillovers for bond measures, election results, property taxes, or overall revenue, spending, and indebtedness. Successful bond measures do not affect the shared property tax base, which suggests that the benefit view of property tax may explain the lack of vertical spillover.

Date: 2025
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