Gary C. Cornia

The Disappearing State Corporate Income Tax

This paper examines alternative explanations for the decline over the past two decades in state corporate income taxes relative to the state economy. We employ a survey of state tax administrators, individual tax returns from Georgia and Utah, and panel data to explore the importance of tax policy, tax planning, and economic factors on the trend in state corporate taxes. We find that corporate tax planning and economic factors account for much of the relative decline, and that state tax policy changes are important factors. However, federal tax changes had only a modest effect during this period.

Public sector transition in post‐communist economies: the struggle for fiscal decentralisation in the Czech and Slovak Republics

Studies of economic transition often focus on the private sector, but successful transition also requires devolution in the public sector. This study compares fiscal decentralisation in the Czech and Slovak Republics, whose institutions began to diverge only after their 1993 ‘velvet divorce’. This article reviews challenges confronted in this fiscal decentralisation. Local finance problems are related to revenue generation, the use of the property tax and the transfer of funds to municipalities. Local political autonomy includes the ability to exercise some autonomy in resource use. Little can be expected where sub‐national governments generate little revenue independently. Potential moral hazard problems are associated with central generation of property tax revenues, as occurs in the Czech case. The EU has not promoted fiscal decentralisation in these republics, although it has encouraged ‘reforms of public administration’ to devolve power. But fiscal decentralisation and public administration reform are complementary strategies rather than strategy substitutes.

The Effect of Local Option Sales Taxes on Local Sales

Because retail sales taxes generate substantial revenue for many local governments, public officials contemplating differential local option tax rates must carefully assess the potential impacts of such decisions on purchasing decisions. The authors use a unique pooled time series to examine these impacts and apply a methodology that permits an analysis of the effects on purchasing decisions of sales tax rate differences across numerous consumer goods. The results indicate that the response to sales tax rate differences depends on the general characteristics of the goods being purchased. A unique variable that controls for the distance to the next significant alternative for making a purchase also provides key insights. The observed significance for this variable and its interaction with tax rates has significant public policy implications.

Alternative Financing Models for Transportation: A Case Study of Land Taxation in Utah

Recent events have highlighted the consequences of inadequate attention to infrastructure funding. Current funding strategies focus on fuel taxes, transfers from general funds, user fees, toll roads, congestion pricing, and using technology to enhance the fee structure of the current system. This article examines another alternative, a property tax focused on the value of land, known as land tax. A land tax would be economically efficient, in that it would not distort economic decision making. The authors review the feasibility of implementing a land tax and the revenue that could be raised from this tax. They conclude that a land tax is administratively feasible and that it could generate significant revenue to help fund much-needed infrastructure.

Fiscal Decentralization in the Czech and Slovak Republics: A Comparative Study of Moral Hazard

Fiscal decentralization has provided neither the benefits of decentralization nor an independent revenue source for subnational governments in the Czech and Slovak Republics. In Slovakia political conditions early in the transition led to the relative neglect of revenue transfers from the center. This produced financial stress but also encouraged greater fiscal independence for local governments. It also forced them to seek maximal property tax revenues. The Czech Republic made more substantial transfers to local governments, but the development of fiscal autonomy was stifled as transfers reduced the need for own-source local revenues. The Czech real estate tax has remained nominal, as it was under central planning, and its administration is fraught with moral hazard problems. Thus, the property tax never became a vehicle for generating independent funds, but the prospects for the tax are much brighter in the Slovak Republic. This paper offers several views on why the property tax has been more successful in the Slovak Republic.

Diversifying Local Government Revenue in Bosnia-Herzegovina Through an Area-Based Property Tax

After a bitter and devastating war, Bosnia and Herzegovina is making slow but steady progress rebuilding its economy and government structure. As normalcy returns, the demand for government services invariably will continue to increase, especially at the sub-entity levels of government. Unfortunately, the current fiscal structure severely restricts the resources available to local governments. This article suggests that Bosnia and Herzegovina consider adopting a property tax as a means to provide much- needed revenue. After describing the current governmental and fiscal system that has evolved since the signing of the Dayton Accords, the authors discuss why an area-based property tax, rather than a more traditional property tax based on capital value or market prices, makes sense for this country in transition.

Slovakia's Surge: The New System's Impact on Fiscal Decentralisation

Slovakias transition history long paralleled that of the Czech Republic, but the former adopted bold new reforms early in this decade. This article is a comparative treatment of fiscal decentralisation since 1993 and more recent reforms of public administration, the two efforts representing the foundation of the New System. Czech experience is invoked simply to provide an appropriate benchmark for the evaluation of Slovakias New System introduced in 2004, including the 19% ‘flat tax’ and other striking measures in local public finance. The second focus of the article is on the macroeconomic impact of the New System. It is too early to perceive what its long-term effects will be, so this treatment is more tentative. But because one would like to know whether Slovakias return to an economic growth path is actually a result of the New System and whether this recent growth will persist, these issues are given some consideration.

The Implications of Utility and Telecommunications Deregulation for Local Finance

LOCAL AND STATE governments are not bashful about imposing taxes on the three largest regulated utility groups in the United States: gas, electric, and telecommunications. When compared to other industries, utilities are responsible for a disproportionate share of subnational taxes. The National Council on Competition and the Electric Industry estimates that state and local governments collect taxes on gas, electric, and telecommunications utilities that are generally double the rate imposed on other industries (Deloitte and Touche 1996).1 In addition to direct taxation, many local governments benefit from owning one or more of the utilities operating within their jurisdictions. The majority of the electric utilities operating in the United States are owned by cities, and the profits from many of these utilities are often used wholly or in part to fund general government functions, giving governments an opportunity to reduce their reliance on more traditional tax dollars. The “opportunity” to tax utilities has been, to a substantial degree, a function of their regulated status. Historically, utilities were granted an exclusive franchise to provide vital services within a jurisdiction. Along with their franchise status came an expectation that they would be taxed. As Phillips (1993) The Implications of Utility and Telecommunications Deregulation for Local Finance

Personal Income Tax Revenue Growth and Volatility: Lessons and Insights from Utah Tax Reform

In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue stream. This was especially important for education financing. The tax system that was finally adopted retained exemptions and deductions through a tax credit. Using a series of simulations based on twenty-one years of tax returns, we establish that by retaining exemptions and deductions, tax reform efforts failed to appreciably reduce the volatility of personal income tax revenues. These simulations also show that the initially proposed flat income tax with no exemptions or deductions would have decreased volatility at the cost of reducing the growth rate. This study contributes insights, caveats, methodology, and potential alternatives for future individual income tax reforms by focusing on the growth and volatility of three different tax systems.

From intergenerational equity to intergenerational stewardship

This essay borrows from our civic humanist tradition to present an alternative to the more dominant neo-utilitarian approach to evaluating current decisions and their potential burden on future generations. The analysis first focuses on financial debt, and then applies the framework beyond the realm of financial policy. The framework exposes some limitations in the rational-quantitative approach to policy decision, and embraces the art of stewardship as a more encompassing and appropriate role in public life. Stewardship brings intergenerational obligations to bear on decisions that current analytic techniques fail to regard as meaningful. The ways and means of stewardship are matters more of prudent judgment and passionate commitment to ways of life than of rigorous analytic precision. [A] man owes it to his children, to his neighbors to secure their future and rescue their lives from impediments to holiness and happiness. Therefore he has no right to acquiesce in tyrannical and immoral government. Lord ...