Intrametropolitan fiscal relations: Special taxing districts

Abstract

This paper examines the intrametropolitan fiscal relations that result from the creation of certain special taxing districts (STDs). There are, in large metropolitan areas, a variety of special-purpose units of government, financed in varying proportions by tax levies, user charges, and intergovernmental grants. This study focuses on STDs which provide private (or club) goods that are income-elastic and are financed in large part by tax levies. Park districts are an example. Using the framework of the Tiebout model [15], this paper develops the argument that these STDs impede the Lindahl [10] optimality equilibrium results from occurring. Specifically, they create and perpetuate a fiscal redistribution beneficial to suburban residents. In the first section of this paper we develop a model that shows the role of this type of special taxing district in generating fiscal disparities among households. The second section tests the model using data that measure tax and benefits incidence and fiscal residuals in a region with several STDs. The final section suggests policies to achieve a Lindahl solution.