William H. Hoyt

Property taxation, Nash equilibrium, and market power

Abstract Differences in tax policy arise from differences in the number of jurisdictions in a metropolitan area. Following Wildasin [4] and Bucovetsky [2] the tax rates in the jurisdictions are determined in a Nash game in the tax rate. The tax rate and public service level as well as the welfare of residents increase as the number of jurisdictions in the metropolis decreases.

Educational vouchers, welfare effects, and voting

Abstract We analyze the welfare effects and voting equilibrium with vouchers for private schools. The analysis shows that vouchers, like tuition tax credits [ Martinello and West (1988) ; Frey (1983) ], may improve the welfare of all families, including families whose children remain in public schools, if public educational quality is unchanged and publicly-financed educational expenditures decrease. Thus, voters will approve a voucher only if it reduces taxes. When public educational quality is endogenous, a voucher may increase quality by reducing the tax cost of quality and will be approved if it reduce taxes at the pre-voucher public education level and increases quality.

Leviathan, local government expenditures, and capitalization

Abstract A number of recent studies have found a positive relationship between local government expenditures and the concentration of local governments, offering support for the contention of Brennan and Buchanan [Brennan, G., Buchanan, J., 1980. The Power to Tax: Analytical Foundations of a Fiscal Constitution. Cambridge University Press, Cambridge] that Leviathan governments are limited by competition among localities. I develop an alternative explanation. Expenditures are greater in large cities because the costs of inefficiency to residents are lower there. While tax increases in small cities are fully capitalized into property values, they are not for large cities. Because residents of large cities do not bear the full burden of inefficiently high taxes they have less incentive to limit government inefficiency.

Capital gains taxation and the demand for owner-occupied housing

Previous studies of owner-occupied housing typically ignore the taxation of capital gains because homeowners do not pay a capital gains tax if they buy up when they move. However, the capital gains tax code introduces a kink into the budget constraint of most previous homeowners, causing previous owners to face a different price of housing depending on whether they buy up or down. We control for the kinked budget constraint within a maximum likelihood model of owner-occupied housing demand. Results indicate that failure to model the capital gains tax provisions leads to inefficient estimates of the elasticities of demand. However, controlling for the kink did not lead to statistically different coefficient estimates relative to a linear budget constraint model.

Market power of large cities and policy differences in metropolitan areas

Abstract When a single city, the ‘central city’, has a large share of the metropolis population, it will influence housing prices in other, smaller cities, the ‘suburbs’. This market power leads to differences in government policy and property values between the central city and suburbs even when residents and amenities in the two regions are identical. When the central citys government is controlled by property-owning residents, its property tax rate exceeds the rate in the suburbs. The central city will also have lower property values than suburbs.

Owner-occupied housing, capital gains, and the Tax Reform Act of 1986

Abstract Previous homeowners face a nonlinear (kinked) budget constraint because they can avoid paying tax on the capital gain from the sale of their home if they purchase a more expensive home when they move. Simulation results suggest that the Tax Reform Act of 1986 (TRA86) has enhanced the importance of the capital gains kink by raising the after-tax cost of housing through lower marginal income tax rates while increasing the tax rate on capital gains. As a result, a reduction in the capital gains tax rate would reduce housing demand as some families currently at the kink would buy a less expensive home. Our findings also indicate that the level of excess burden increases with the capital gains tax rate, but that TRA86 reduced the size of implicit price subsidies received by owner-occupiers, and related deadweight loss, by roughly one-half. However, the distribution of benefits and deadweight loss from the favorable tax treatment of housing remains heavily weighted to higher income families. In addition, the size of the implicit housing subsidy and related distortion is sensitive to the level of mortgage rates.

Precommitment in a system of hierarchical governments

Abstract Local government tax and service policies, for reasons including tax competition, spillovers of service benefits, household migration, and a limited choice of tax instruments, may not be globally efficient. Policies used by state governments to remedy these inefficiencies include matching grants, mandates, and tax subsidies. We consider an additional strategy that the state government may employ to influence local policies, namely choosing or ‘precommitting’ to its policies before the local governments choose their policies. We argue that the conditions necessary for the state government to credibly precommit to its policies with respect to local government policies do exist. The unlikelihood of the state government being able to alter its policies after local governments have chosen their policies reduces problems associated with time-inconsistency. We first derive the general conditions necessary for precommitment to improve social welfare and then provide several examples from the literature on state and local public finance in which precommitment by the state government increases social welfare and leads to different policies than those obtained in the Nash equilibria normally considered.

The Economic Costs of Partner Violence and the Cost-Benefit of Civil Protective Orders

Partner violence affects a significant number of women and their children each year. Estimates of the economic costs of partner violence are substantial. However, most estimates of the costs of partner violence are made at the aggregate level rather than the individual level. Estimating costs at the individual level allows for a wider range of costs of partner violence to be considered. This study is one of the first to examine a wide range of economic costs of partner violence and to examine the economic costs and cost-benefits of civil protective orders. Overall, including changes in quality of life, protective orders were estimated to have saved taxpayers in one small state US

The Taxpayer Relief Act of 1997 and Homeownership: Is Smaller Now Better?

85 million in a 1-year period. More generally, this study provides a framework to address more specific complexities associated with cost-benefit analyses of partner violence and the impact of justice system interventions.

Tax Limits and Housing Markets: Some Evidence at the State Level

Prior to 1997, homeowners under 55 were allowed to defer capital gains taxes from a home sale if they bought another house at least as expensive, while those over 55 received a capital gains exclusion regardless of the cost of their new home. The Taxpayer Relief Act of 1997 (TRA97) eliminated this differential tax treatment. We exploit the differential treatment before 1997 to uncover TRA97’s effects. Comparing homeowners under 55 before and after 1997, we find that those who moved after 1997 are twice as likely as to list “seeking less expensive housing” as a reason for moving, 8 percent less likely to own their residences and 9 percent less likely to live in a single family home.