The Elusive Fiscal Commons : Examining Fiscal Interaction among Overlapping Governments

Public finance theories postulate that the fiscal decisions of one government influence decisions of other horizontally or vertically related governments. Vertically overlapping governments share the same tax base. The theoretical prediction of vertical spillover is ambiguous and the empirical evidence is thin. This paper addresses empirical challenges in the fiscal spillover research by using a regression discontinuity design. We focus on close elections from a dataset on local government bond referendums in Texas and identify the effect of exogenous increases in debt and property taxes induced by successful bond measures. We find no evidence of spillovers for overlapper outcomes related to bond measures, election results, property taxes, or overall government revenue, spending, and indebtedness. Successful bond measures do not affect the shared property tax base, which suggests that the benefit view of property tax may explain the lack of vertical spillover