THE EFFECT OF PROPERTY-TAX LIMITATION MEASURES ON LOCAL-GOVERNMENT FISCAL BEHAVIOR

Previous evidence on the effects of tax and expenditure limitation mea sures has not been conclusive. Difficulties arise in characterizing di fferences in fiscal institutions across states, and estimating behavio r in the absence of limitation measures. A recently enacted tax limita tion measure limits the growth in local property taxes in some Illinoi s jurisdictions, but not in others. Such differential treatment of oth erwise similar jurisdictions provides a natural experiment for estimat ing the impact of the tax cap on local government fiscal behavior. We find that the cap has been effective in that the fiscal behavior of ca pped jurisdictions differs from that of never-capped jurisdictions. (C ) 1997 Elsevier Science S.A.