Putting economic theory to the test: Cutting local taxes cuts household income

Original article: "Fiscal policy and economic activity: new causal evidence" - https://onlinelibrary.wiley.com/doi/10.1111/sjoe.70011

"Abstract. Utilizing a quasi-natural experiment design, we identify an exogenous cut in local taxes accompanied by an equivalent reduction in local government spending, and we estimate the impact of these exogenous changes on income. We exploit a unique regional dataset that combines local income data with local voting outcomes on current expense tax levies. Taxes and the associated spending change abruptly at the 50 percent vote share cutoff below which a tax levy fails to pass. This cutoff determines which observations serve as controls and which receive treatment: a reduction in local taxes and government spending. Voting percentages around the cutoff are a source of exogenous variation, with observations around this quasi-randomly assigned and very similar across characteristics. We find that balanced budget reductions in taxes and spending cause a large drop in local incomes in the first two years after the vote, suggesting that government expenditure effects on income are larger than fiscal revenue effects. The cumulative government spending multiplier of a balanced-budget change in spending for our baseline is a sizable 1.5. This effect of local tax-financed government spending is prominent in low-income and high-poverty areas, suggestive of mechanisms related to the share of liquidity-constrained agents."

The data is not very revealing nor realistic at all unless there is a baseline control where the actual tax rate is truly insignificant relative to each taxpayer's cash flow.

Anything more is just too devastating for widespread economic opportunity overall.

Too bad so many places and things have rates that have risen to multiples of a significant burden, or never decently declined enough from when they were an actual king's ransom.

So choosing Ohio may be as good a representative sample as you can get, because it is a reasonable microcosm, and there isn't a comparable place with low enough tax rates to serve as an accurate reference point for the upper bound of local resource utilization. Plus for this, University of Cincinnati can be expected to do a better job of research than most.

But that doesn't mean the data is any good, especially when the confounding factors contribute more inaccuracy to any conclusions, skew results, and add up in the neighborhood between significant vs insignificant tax rates.

Something else to think about is the way that taxing authorities, even when they are not actual royalty, have always been subject to waste and excess that all citizens would rather not indulge in. If not absolutely rife with waste and corruption that no one individual can do anything about in their entire lifetime.

But waste is the real economic killer like nothing else, and all it takes is average everyday citizens to each virtually eliminate waste within their own domain and the collective waste will always be less than if the same funds were handled by ordinary taxing authorities.

All other things being equal, which is of course not true, and that's just one of the things wrong with data that looks like it points one way when it really doesn't point any direction at all.

There's just nothing sensible about taxing property anyway when it should be the cash flow if any generated by the property, and never at a rate or schedule that could risk ownership of the property during times of limited prosperity.

Besides all this, you just can't put a dollar value on it when a citizen on their own can completely eliminate their own waste if need be, under economic duress or not, and be left with no significant ongoing obligations that would slow or limit their progress. Versus just the opposite, if a property is no longer growing crops plantation-style or something like that, for even one single year, the entire property could be lost, which is the actual purpose of the ongoing levy to begin with. That's not only 100% the value of the property, but many multiples lost to absolute waste considering how much effort and previous tax has been put into the property before total loss. Big difference between insignificant rates which are agreeably tolerable over the long run.

I understand the desire to make sense out of nonsense and it's highly respectable doing an outstanding job with what there is to work with, but digital data or not the old saying GIGO still applies.