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Rules Versus Home Rule—Local Government Responses to Negative Revenue Shocks

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  • Daniel Shoag
  • Cody Tuttle
  • Stan Veuger

Abstract

Local governments rely heavily on sales tax revenue. We use national bankruptcies of big-box retail chains to study sudden plausibly exogenous decreases in this type of revenue. Treated localities respond by reducing spending on law enforcement and administrative services. We further study how cities with different degrees of autonomy vary in their response. Cities in home rule states, who have greater autonomy, react more swiftly by raising other types of revenue. A regression discontinuity analysis of cities in Illinois, where home rule status is triggered by crossing a population threshold, shows that this effect of local autonomy is causal: home rule leads to smaller revenue drops and stronger bond ratings.

Suggested Citation

  • Daniel Shoag & Cody Tuttle & Stan Veuger, 2019. "Rules Versus Home Rule—Local Government Responses to Negative Revenue Shocks," National Tax Journal, National Tax Association;National Tax Journal, vol. 72(3), pages 543-574, September.
    • Handle: RePEc:ntj:journl:v:72:y:2019:i:3:p:543-574
    DOI: 10.17310/ntj.2019.3.03
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    Cited by:

    1. Koomin Kim, 2023. "How gubernatorial budgetary power and interest groups affect vertical fiscal imbalances in the US states: Focusing on fiscal centralization and decentralization," Public Budgeting & Finance, Wiley Blackwell, vol. 43(2), pages 53-81, July.
    2. Jerch, Rhiannon & Kahn, Matthew E. & Lin, Gary C., 2023. "Local public finance dynamics and hurricane shocks," Journal of Urban Economics, Elsevier, vol. 134(C).
    3. Ivanov, Ivan T. & Zimmermann, Tom, 2024. "The “Privatization” of municipal debt," Journal of Public Economics, Elsevier, vol. 237(C).
    4. Pengju Zhang & Phuong Nguyen‐Hoang & Na Chen, 2022. "The impact of home rule on municipal boundary and fiscal expansion: Evidence from Texas," Journal of Regional Science, Wiley Blackwell, vol. 62(5), pages 1442-1466, November.
    5. Jeffrey Clemens & Stan Veuger, 2020. "Implications of the COVID-19 Pandemic for State Government Tax Revenues," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(3), pages 619-644, September.
    6. Riley Wilson, 2021. "Isolated States of America: The Impact of State Borders on Mobility and Regional Labor Market Adjustments," Upjohn Working Papers 21-358, W.E. Upjohn Institute for Employment Research.
    7. Pengju Zhang & Phuong Nguyen‐Hoang, 2023. "Home rule and municipal revenue stability: New evidence from Texas," Public Budgeting & Finance, Wiley Blackwell, vol. 43(1), pages 38-60, March.
    8. repec:aei:rpaper:1008570714 is not listed on IDEAS
    9. Green, Daniel & Loualiche, Erik, 2021. "State and local government employment in the COVID-19 crisis," Journal of Public Economics, Elsevier, vol. 193(C).
    10. Wilson, Riley, 2022. "The Isolated States of America: Home State Bias, State Identity, and the Impact of State Borders on Mobility," IZA Discussion Papers 15193, Institute of Labor Economics (IZA).

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