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The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey

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  • Goodspeed, Timothy
Abstract
- New Jersey enacted an income tax in 1976 in response to a State Supreme Court ruling that held that local taxation alone violated the requirement of the State Constitution that all children receive a “thorough and efficient” education. The law required that revenues from the income tax be dedicated solely to relief of local property taxes. Most of the relief is given as aid to local school districts. This paper offers both a theoretical and an empirical analysis of the effect on local property taxes of changes in aid resulting from the 1990 increase in the income tax enacted under Governor Jim Florio and the beginning of the 1994 decrease in income taxes enacted under Governor Christine Whitman. The theoretical analysis is based on general equilibrium models developed over the previous two decades. The results indicate (1) a flypaper effect for both increases and decreases in aid, which may be more pronounced for decreases, and (2) that higher income districts choose to increase property taxes more than other districts when the income tax is reduced.

Suggested Citation

  • Goodspeed, Timothy, 1998. "The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey," MPRA Paper 29549, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29549
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    Cited by:

    1. Florence Lachet-Touya, 2013. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers hal-02945285, HAL.
    2. Florence TOUYA, 2009. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers 9, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2009.
    3. Jorge Núñez Ferrer & Jacques Le Cacheux & Giacomo Benedetto & Mathieu Saunier & Fabien Candau & Claude Emonnot & Florence Lachet-Touya & Jorgen Mortensen & Aymeric Potteau & Igor Taranic, 2016. "Study on the potential and limitations of reforming the financing of the EU budget [Perspectives et limites pour réformer le financement du budget de l’UE]," SciencePo Working papers Main hal-01848029, HAL.
    4. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.
    5. Florence Lachet-Touya, 2012. "Les interactions fiscales verticales à la lumière de la théorie des multiprincipaux," Recherches économiques de Louvain, De Boeck Université, vol. 78(1), pages 27-46.
    6. Florence Lachet-Touya, 2013. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working papers of CATT hal-02945285, HAL.
    7. Florence Lachet-Touya, 2009. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working papers of CATT hal-03551027, HAL.
    8. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working papers of CATT hal-02939340, HAL.
    9. Lars-Erik Borge & Jørn Rattsø, 2001. "Income Distribution and Tax Structure: Microeconomic Test of the Meltzer-Richard Hypothesis," CESifo Working Paper Series 543, CESifo.
    10. Santiago Lago-Peñas, 2008. "Local Governments' Asymmetric Reactions to Grants," Public Finance Review, , vol. 36(2), pages 219-242, March.
    11. Jorge Núñez Ferrer & Jacques Le Cacheux & Giacomo Benedetto & Mathieu Saunier & Fabien Candau & Claude Emonnot & Florence Lachet-Touya & Jorgen Mortensen & Aymeric Potteau & Igor Taranic, 2016. "Study on the potential and limitations of reforming the financing of the EU budget
      [Perspectives et limites pour réformer le financement du budget de l’UE]      ," Working Papers hal-01848029, HAL.
    12. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers hal-02939340, HAL.
    13. Levaggi, Rosella & Zanola, Roberto, 2000. "The Flypaper Effect: Evidence from the Italian National Health System," POLIS Working Papers 10, Institute of Public Policy and Public Choice - POLIS.
    14. Florence Lachet-Touya, 2009. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers hal-03551027, HAL.
    15. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working papers of CATT hal-02939399, HAL.
    16. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    17. Borge, Lars-Erik, 2000. "Charging for public services: the case of utilities in Norwegian local governments," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 703-718, December.
    18. Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, vol. 48(4), pages 805-826, August.
    19. Gamkhar, Shama & Olson, Jerome A., 2001. "Asymmetric responses in economic models," Journal of Policy Modeling, Elsevier, vol. 23(5), pages 553-568, July.
    20. Shama Gamkhar, 2000. "Is the Response of State and Local Highway Spending Symmetric to Increases and Decreases in Federal Highway Grants?," Public Finance Review, , vol. 28(1), pages 3-25, January.
    21. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    22. Goodspeed, Timothy J., 2000. "Tax structure in a federation," Journal of Public Economics, Elsevier, vol. 75(3), pages 493-506, March.
    23. Phuong Nguyen-Hoang & Yilin Hou, 2014. "Local Fiscal Responses to Procyclical Changes in State Aid," Publius: The Journal of Federalism, CSF Associates Inc., vol. 44(4), pages 587-608.
    24. Florence TOUYA, 2013. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers 2012-2013_9, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Jul 2013.
    25. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers hal-02939399, HAL.

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    More about this item

    Keywords

    education finance; grants; federalism; flypaper effect;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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