Can Cities Manage Growth Through Taxation? A Study of Spatial Equilibria in California Cities

• Main Author: Abazajian, Katya A
• Format: Others
• Published: Scholarship @ Claremont 2013
• Subjects: spatial equilibrium; local government; tax policy; political science; political economy; Growth and Development; Industrial Organization; Labor Economics; Political Economy
• Online Access: http://scholarship.claremont.edu/cmc_theses/752; http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=1752&context=cmc_theses

Local government policy often relies on taxation to address the central concern of ensuring municipal growth. This paper uses a measure of taxes compiled by the Rose Institute of State and Local Government called the Kosmont Cost of Doing Business rating to discuss the effects of tax policy on growth. The goal of this paper is to use the spatial equilibrium model to estimate the correlation between the cost of doing business and certain basic observable outcomes. These outcomes are reflected in wage, population, and price levels. The underlying spatial equilibrium model leads to “deep effects” equations, which are used to connect these observable correlations to more tangible measures of growth. Through the deep effects equations, we analyze the effect of the cost of doing business on the productivity, amenities, and economic success of California’s cities. We find that a higher cost of doing business does not lead to lower productivity and amenities, but rather improves amenities and maintains steady levels of productivity under a long-term equilibrium.