Category Archives: State & Local Finance

Sales Tax Competition among State–Local Governments: Evidence from the US Counties

Source: Jongmin Shon, International Journal of Public Administration, Latest Articles, Published online: 27 Mar 2017
(subscription required)

From the abstract:
This article estimates tax reaction function of local governments competing with other governments to provide the insight for tax policy decision makers. Employing a panel of county-level data in all the states from 1970 to 2006, this article analyzes sales tax competition between county governments. In addition to a static model, this article pays more attention to dynamics in tax reaction function estimated by general methods of moments containing lagged dependent variables in the reaction function. Focusing on county governments, this article finds evidence for strategic interaction, an interaction that has positive effects on the setting of tax rates in a county.

Block Grants: Past, Present, and Future

Source: Federal Funds Information for States, Issue Brief 17-12, April 11, 2017
(subscription required)

From the summary:
During the House debate around repealing and replacing the Affordable Care Act (ACA), a provision was added allowing states to participate in an optional block grant for certain Medicaid participants. While the bill was pulled from the House floor, converting all or part of Medicaid into a block grant is not a new idea. Medicaid and other major open-ended mandatory programs, including the Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), and child nutrition programs, have all been recommended for conversion into block grants in recent years.

This Issue Brief provides context for these and other proposals by examining block grants as a subdivision of federal grant funding. It also highlights recent proposals affecting block grants.
A separate spreadsheet providing data on federal block grants is available here.

The Short-term Effects of the Kansas Income Tax Cuts on Employment Growth

Source: Tracy M. Turner, Brandon Blagg, Public Finance Review, OnlineFirst, March 29, 2017
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From the abstract:
The state of Kansas made dramatic changes to the structure of its personal income tax by eliminating taxation of business income and lowering marginal tax rates on other personal income sources. Proponents of the legislation maintain that the tax reductions will stimulate employment growth. Using a difference-in-differences approach, we estimate the impact of the tax changes on private-sector employment in the state of Kansas, relative to its border states, using data on the number of establishment employees and proprietors. We apply multistate county fixed effect model and county-border matching approaches to identify tax effects. Our findings indicate that two years post enactment, the tax law changes have not yielded a net increase in private-sector employment.

In Search of Rural Jobs, States Weigh Strategy With Checkered Past

Source: Jen Fifield, Stateline, March 30, 2017

In rural communities across the country, jobs are disappearing and people are moving away, driving a desperation that helped elect Donald Trump president.

But as state lawmakers look for ways to bring life to these long-struggling areas, many are falling prey to a complex economic development approach, pushed hard by investment firms that stand to benefit, that has failed to live up to its promises.

The so-called rural jobs bills have been proposed in at least 11 states this year, and last week in Utah, Gov. Gary Herbert, a Republican, signed one into law. Under the bills, state tax credits are awarded to companies that agree to invest in or loan money to funds set up by investment firms or other brokers. The funds then invest the money in rural businesses. The proposals are the latest iteration of an approach that at least 20 states and Washington, D.C., have turned to in the last three decades.

But states that have evaluated the multilayered subsidized lending programs — originally CAPCO (certified capital companies) programs and later New Markets Tax Credit programs — have found that they failed to deliver promised jobs and tax revenue.

Three firms — Advantage Capital Partners, Enhanced Capital and Stonehenge Capital — have led the lobbying for the programs and have been the main participants in several states. ….

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