Public Finance Review

Because the Supplemental Security Income (SSI) program has both income limits and asset limits, those on the margin of eligibility for the elderly component of the program face incentives to reduce labor supply prior to becoming eligible. The authors’ past research relying on cross-state variation in SSI benefits found evidence of negative labor supply effects. However, a reliance on cross-state variation implied less than ideal control samples. In contrast, this article uses CPS data covering a twenty-two-year period, which permits identifying the effects of SSI from within-state, time-series variation in SSI benefits, using a better control sample. The evidence points consistently to negative effects of more generous SSI payments on the labor supply of likely SSI participants aged sixty-two to sixty-four. For those with a high probability of SSI participation, the implied elasticities of employment and hours with respect to benefits are generally in the range of -0.2 to -0.3.

Alternative hypotheses exist regarding the impact of local sales and income taxes on local governments’ taxing and spending decisions. One hypothesis is that local governments use sales and income taxes to pay for spending increases and leave property tax collections unchanged, while an equally plausible alternative is that local governments use sales and income taxes to reduce property taxes. Traditional models that restrict the impact of these local taxes to be the same across all local governments are not able to capture both types of behavior. The methodological difficulty lies in allowing for differences in behavior with no a priori information on which cities belong in which category. In this article, the authors use panel data to estimate a mixture model of spending and property tax response to the existence of local taxes. These empirical results provide evidence to support both hypotheses. These differences are both substantive and statistically significant.

The median-voter and budget-maximizing bureaucracy models imply different effects from intergovernmental aid. In this article, the author uses data from an ambitious school district equalization program in Connecticut to test these models. Finding no clear winner in terms of explanatory power, he uses the results of both models to examine the impact of the equalization aid. The estimated models yield a mean price elasticity of public school expenditure of -0.39 and income elasticities of 0.49 and 0.57 for the median-voter and bureaucracy models, respectively. Simulations indicate that the Connecticut school finance equalization and Education Enhancement aid resulted in a reduction in the standard deviations of per pupil spending across districts of 29% to 33% and halved the standard deviation of net school mill rates.

Municipal residency requirements require city employees to live within the city limit. Many cities enacted residency requirements attempting to attract middle-class families into the city and to prevent them from leaving. The model developed in this article suggests that a residency requirement can increase a city’s middle-class population but only if it is accompanied by a municipal wage premium. When effective, a residency requirement can also increase the likelihood that a municipal family will enroll its children in private school through a Tiebout sorting effect. Using U.S. census data, the author finds that comprehensive residency requirements are often but not always accompanied by a municipal wage premium. Furthermore, municipal families living in cities with both a residency requirement and a wage premium are significantly more likely to enroll their children in private school.

This article tests the effects of fiscal reserves on state total own-source expenditure in downturn years. Using a panel data set (fifty states, 1979 to 1999), the article uses the variance-from-trend as the dependent variable to estimate the effects of aggregate reserves as well as budget stabilization funds (BSF) and general fund surpluses (GFS) and obtain their respective coefficients. Two data sources on fiscal reserves are used: the Fiscal Survey of the States and the Comprehensive Annual Financial Report. The article provides evidence that fiscal reserves exert positive effects on state own-source expenditure in downturn years. The effects, however, are mainly from the BSF; the GFS coefficients, even when statistically significant, are only a quarter the size of those for the BSF. Nevertheless, states that do not have a BSF seem still to rely on the GFS. It appears that the BSF has taken over the counter cyclical stabilizing function from the GFS.