Optimal Fiscal Policy for State and Local Government

Richard Arnott and Ronald Grieson ()

Working Paper from Economics Department, Queen's University

Abstract: State and Local Government services are enjoyed by two groups, residents and non-residents: similarly, taxes are borne by both groups. This paper addresses the question: if state and local governments act so as to maximize their residents' welfare, and if they cannot distinguish between individual residents and non-residents but know the aggregate characteristics of the two groups, what set of taxes and public goods should they choose? Some of the results are: i) even when all goods are taxable and equity is ignored, the existence of non-resident consumption makes uniform taxation non-optimal; ii) in some non-trivial cases, whether a good should be taxed or subsidized is independent of its own-price elasticity; iii) central cities may be subsidized by suburban residents; and iv) the ability of state and local governments to redistribute is inversely proportional to the openness of the economy.

Pages: 44
Date: 1978
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:291

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