Federalism, Tax Base Restrictions, and the Provision of
Intergenerational Public Goods
Paper (John Hatfield)
Comments (Greg Burge)
Competition and Subnational Governments,
April 25th-26th, 2014, Knoxville, Tennessee
Summary of the paper
• Drawing on the capitalization effects of IPGs on land values, the
current generation’s ability to finance IPGs through debt to be paid
back by future generations, and the current value of land being
influenced by both the burden of future taxes and the benefits of
future IPG consumption, the model developed shows that under
certain conditions the efficient level of IPGs will be provided even
though the current generation does not (directly) experience the
full benefit of their consumption.
– Local governments invest more efficiently than central governments
regardless of the tax instrument
– Head Taxes achieve efficiency even if the presence of limited
competition and congestible IPGs while land taxes do not, but land
taxes approach efficiency for pure non-rival IPGs with many districts.
Implications
• Argues for rethinking the connection between
“big” (central) government and “big” (durable,
intergenerational) public infrastructure.
• Competition may trump the central
governments ability to deal with crossjurisdiction externalities.
Overall Reactions
• Strong paper, solid defense of claims.
• Some additional topics could potentially be
touched on through further comments in the
paper, others may be better left for future
extensions.
Cost Sharing Agreements
• Various types of sub-national cost-sharing
agreements (local-local, state-local, state-state) are
common ways of handling spillovers that are
considerable in magnitude.
• For example, the State of New York DOT just entered
into an agreement with AMTRAK. The article
outlined how
– “New York has already completed a separate agreement to share costs with
Vermont on the Ethan Allen line, which carries passengers between Albany
and Rutland, Vt.”
Different Types of IPGs?
• Certain types of local infrastructure (transportation systems,
buildings, land preservation) are immobile.
• Local government’s also invest in durable human capital
(education, health & human services, job training). The costs
are often labor costs, not capital expenditures. But studies
show the rate of return to human capital is just as high as the
rate of return to physical capital.
• The human capital (youth) that local jurisdictions invest in is
mobile though, and can leave the jurisdiction. Efficiency in
investing in these local services?
Equity Issues
• In the model, IPG is simply in the jurisdiction,
it does not have a location per se. [So in turn,
the price of land is a value, not a gradient.]
• 2nd generation pays based on land values, so
they do not gain/lose based on where the IPG
is located.
• 1st generation winners/losers.
Reversibility & consuming the IPG
• The IPG was irreversible here, which makes sense in
most general cases.
• Capital Facilities that have value to the private sector
could conceivably be sold by future generations to
increase their consumption of the private good.
• In more general terms, the real world application of
this theory would suffer if the current generation had
an imperfect signal of the future generations
willingness to pay for the IPG.
Used Local Revenues
• Mentions the lack of head taxes and land
taxes in concluding remarks.
– Property taxes
– Local sales taxes
– State income taxes
– Local Impact Fees
– Ability to reach efficiency in IPG provision is linked
with the influence on land values in any case.