Center for Policy Research
Property Tax Web Series
Federal Tax Deductions and the Demand for Local Public Goods
Brent W. Ambrose and Maxence Valentin
September 2022
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Abstract
The United States tax system allows taxpayers to deduct state and local taxes from their taxable incomes. Using local referendum results, we document a positive relation between the demand for public goods and the share of residents deducting taxes. Based on this evidence, we develop a theoretical model of local public goods capitalization that accounts for this federal tax provision. We provide empirical support for the model using cross-sectional and temporal variation in local tax deductions, thereby confirming that federal tax deductions increase local public goods demand. The results provide new insights into the equity of the current tax system.
This paper was presented by Brent W. Ambrose on September 23, 2022 as part of the 2022-2023 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. Ruchi Singh was the discussant for this presentation. Singh Comments on Ambrose’s “Federal Tax Deductions and the Demand for Local Public Good.”
This Syracuse-Chicago Webinar Series on Property Tax Administration and Design aims to gather insight and scholarship through domestic and international comparative studies with common threads to help reform and improve property tax administration and design in the U.S. and other countries facing similar problems.
For questions about the webinars, please contact Zia Jackson. For questions about this paper, please contact the author or authors.