The Local Response to Tax Limitation Measures: Do Local Governments Manipulate Voters to Increase Revenues?

Abstract

This paper provides evidence that some cities subject to a statewide tax limit manipulate their mix of productive and administrative services in an attempt to get voters to override the statewide limit. When a statewide limit reduces a city’s budget, one manipulative response is to cut “service” inputs (for example, teachers or uniformed police officers) by a relatively large amount, while cutting administrative inputs by a relatively small amount. This approach reveals a relatively large trade‐off between public and private goods, and the severe consequences from a tax limit may encourage local voters to override the statewide limit. We provide evidence that cities with local‐override options tend to adopt this approach. Manipulation is most prevalent among cities run by city managers (as opposed to strong mayors).