Local Government Rev

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1、Chapter16LocalGovernmentRevenueWhobearsthecostofthepropertytax?Howdolocalgovernmentsrespondtoanintergovernmentalgrant?Introduction:KeyQuestionsAnnualtaxonmarketvalueofpropertyValue=Structurevalue+LandvalueThePropertyTaxCastofCharactersLandowners:Ownlotsthatar

2、efixedinsizeandnumberCapitalists:Ownmobilehomes(structures)Housingfirms:RentlandfromlandownersandrentmobilehomesfromcapitalistsHousingfirms:Renthousingbundle(land+structure)toconsumersPre-tax:Housingrent=$5,000=$4,000(structure)+$1,000(land)Propertytaxpaidinl

3、egaltermsbyhousingfirm:$800(structure)+$200(land)ModelofPropertyTaxIncidencePartial:EffectoftaxinonemarketinsinglecityAssumeperfectlyelasticsupplyofstructures(capital)tothecityTogetamobilehome,housingfirmpayscapitalownerrentof$4,000PartialEquilibriumEffectsof

4、theStructureTaxFirmpays$200lessinlandrent:ShiftlandportionbackwardtolandFirmcollect$800moreinrentfromtenants:Shiftstructureportionforwardtoconsumers$1,000tax=$200savingsinlandrent+$800extraintenantpaymentNormalconsequencesoftaxinperfectlycompetitivemarketWhyD

5、oesn'ttheHousingFirmPaytheTax?Generalequilibrium:ExtendanalysistoothermarketsandothercitiesWheredothemobilehomesgo,andwhathappensthere?FeaturesofGeneralEquilibriumModelSecondcityinregion:UntaxFixedtotalsupplyofmobilehomes(capital)Mobilehomesmoveatzerocostbetw

6、eencitiesGeneral-EquilibriumEffectsoftheStructureTaxConsumerMobilityandLandRentInabsenceofchangesinlandrentPriceofhousinginTaxton($5,400)>PriceinUntax($4,600)Consumerequilibrium:Equalhousingprices&unequallandrentCapitalownersexperience$400decreaseinreturnCons

7、umersunaffectedbythetaxLandownersexperiencezero-sumchangesinlandrentfromstructuretaxOwnersintaxingcityloseOwnersinuntaxedcitygainHousingfirmsearnzeroeconomicprofitbefore&afterthetaxTaxton:Pay$800tax,$400lessincapita,and$400lessinlandrentUntax:Pay$400lessincap

8、ital&$400moreinlandrentSummaryofStructureTaxVariableSupplyofCapital(structures)Somemobilehomesescapemarket:SmallerreductioninreturntocapitalPartofthestructuretaxshiftedtoconsumersConsumer