On fiscal disparities across cities

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Abstract

Some cities have fewer taxable resources and higher costs for providing public services than do other cities. The result, which is widely regarded as unfair, is a wide variation in the ability of cities to supply public services. But our understanding of these fiscal disparities, particularly on the cost side, is limited. This paper provides a general treatment of fiscal disparities by incorporating input and environmental costs into a model of local expenditure determination, investigating the consequences of fiscal disparities in a system of local governments (including housing price adjustments and migration), and designing intergovernmental grants to offset fiscal disparities.

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This paper has benefitted from comments by Katharine L. Bradbury, Paul N. Courant, Edward M. Gramlich, Helen F. Ladd, Herman Lernard, participants in the State and Local Lunch Group at the MIT-Harvard Joint Center for Urban Studies, in the Sloan Workshop in Urban Economics at the University of Maryland, and in the Public Finance Seminar at the University of Michigan.

Associate Professor.

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