The relationship between city taxes, political types, and city growth Christopher B. Colburn Associate Professor Economics Department Old Dominion University Norfolk, VA 23503 email: fax: 757-683-3569 andSuganya UtanskulGraduate Student Economics Department Old Dominion University Norfolk, VA 23503 Draft copy, not for quotation without author's permission. Paper to be presented at the Public Choice Society Meetings, Baltimore, MD, March 2004. Abstract While there has been much research on the relationship between so called quality of life indicators and city population growth there has been little research on the relationship to the tax burden on citizens and the growth of cities across the decimal census. This research uses a cross sectional database of all US cities with a population greater than 100 thousand (a sample of about 200) to estimate the relationship between taxes and population growth.

We follow the general methodology of Glaeser and Shapiro (May 2001, Brookings Institution Survey Series) and Glaeser, Schein man and Shleifer, (Journal of Monetary Economics, 1995). We focus on the role of taxes per capita and the distribution of the tax burden across the income distribution on city growth. Of further interest is the political structure of the cities and population. We break cities into different categories of governance by classifying cities as strong-mayor, council-manager to identify any potential effects of the political structure on economic growth. We hypothesize that in communities that have a less fragmented form of government (consistent with the strong mayor structure) that there will be greater population growth because of a closer match of city characteristics and citizen preferences in a Tiebout sense.

Other variables in the model include traditional variables such as rainfall amounts and temperatures, cars per capita, the average education level, the percent of the labor force in manufacturing, and census region variables. Results indicate that, ceteris paribus, city tax increases do not seem to retard population growth and that political structure is important. The relationship between city taxes, political types, and city growth There were significant changes in the population of larger cities in the United States during the 1990. Traditional models of economic growth have been employed by researchers such as Glaeser and Shapiro (2001) have updated their models to see if there have been structural changes in the detergents of city population growth or if older models continue to accurately predict demographic changes. One factor that has been neglected in the economic literature is the role of the political structure of the city on this growth. Possible motivations for a relationship between growth and political structure are somewhat wide ranging.

For example, one may be able to identify a type principal-agent type of relationship between government decision makers and elected representatives or one may identify a Tiebout motivation in which the degree to which voters may influence decision-making is an important issue on individual and firm location decisions. Hence the focus of this paper is to investigate if such a relationship exists and, if so, identify the direction and magnitude of the relation. The paper is organized as follows. In the first section we briefly discuss the economic growth model that we are extending and put it in the context of existing literature. In the second section we discuss possible motivations for the connection between the city government structure and economic growth with particular connections to related research in Economics, Political Science, and Public Administration. In the third section the motivation for the model is presented along with estimation results and in the final section our results are summarized. I. Population growth models In order to address the question of the effect of city government structure on economic growth we first modify the Glaeser-Shapiro (2001) to account for the role of per capita local taxes on city population changes.

The dependent variable is the growth rate in population between 2000 and 1990 and the set of independent variables include rainfall, temperature, cars and education per capita and the percentage of the workforce in manufacturing. These authors find that rainfall and a greater proportion of the workforce in manufacturing retarded city growth during the decade of the 1990 while where there was a higher educated workforce and higher temperatures and more cars city growth increased. In an earlier paper, which did not focus as much on the forecasting aspect of the population growth model, Glaeser, et al (1995) found that per capita income, variables describing the income distribution, the unemployment rate, and the before mentioned variables measuring the educational background of the population and the percentage of the workforce in manufacturing were important variables associated with city population changes. II. Research on the role of taxes and city government political structure In this section we will briefly discuss related previous research that have addressed, either explicitly or implicitly, the relationship between city governmental structure and the economic vitality of a city and the role of taxes and economic vitality. These papers span three different: economics, political science and public administration.

We first consider taxes. There is a large literature on the relationship between taxes and growth. Helms (1985), for example, said that the impact of taxes depended on how they were used, with expenditures on welfare, for example, having a negative impact. Benson and Johnson (1986) showed that taxes have lagged negative effects, with the adverse impact being realized often after about three years. These and other studies have became larger and more sophisticated with time and reached a conclusion somewhat imperfect relationship between tax and growth.

We now review the research on the structure of local government's role of a local economy. To begin with we will first define the alternative city government structures. The first structure is that of a mayor that does not use a city manager. This structure is often called the strong mayor system because it provides for the most autonomy by the mayor.

An alternative form is that of the council-manager system in which the mayor and the city council work with a city manager. Finally, in the general manager system there is a city manager but the manager reports to the mayor and not to a combination of mayor and city council. In this framework the strong mayor system provides for the greatest connection of the voters to the actual outcomes of local government. In the general manager system the elected mayor works policies through the city manager but does not have to have the permission of the city council to implement policy. This structure falls in between the two extremes in terms of autonomy by the mayor. Finally, in the council-manager system the mayor and city council jointly determine the direction of policies administered by the city manager.

We now consider different theories of local government decision-making. First consider the notion of a! SS Political Entrepreneur!" offered by Schneider and Teske. They suggest that when local governments become competitive with each other that innovations may occur that upset the development patterns in regions and that the successful innovations my ultimately become the status quo. They offer examples such as city growth limitations and tax limitations as examples of entrepreneur behavior. One way of characterizing the dichotomy between a council and a manager form of government is that in the council form the possibility of entrepreneurial behavior may be limited but it may actually be encouraged in a city manager type city. (explain why!!

!) Victor Massad compared mayoral and managerial political structure to the mayor-council political across numerous dimensions in a cluster analysis and concluded that the in the case of large cities that the city managerial system is more efficient. The theoretical motivation for this is based upon the possibility that managers are more efficient because they are trained in managerial decision-making and are not subject to the vagaries of political influence. Economic models that consider the role of political structure have focused on service delivery cost comparisons or demand considerations. Hayes and Chang (1990) used frontier cost estimation analysis and found that council-manager form was no more efficient that the mayor-council form. In Davis and Hayes (1993) consider the efficiency of the delivery of police services and demonstrate no difference in the city government structure on efficiency. Morgan and Pelisse ro addressed the issue weather so called reformed governments, which have among other characteristics a city manager are tax and spend differently than city government that have not reformed.

They find that changes in city government did not lead to changes in local government spending behavior. In an update of the previous paper Morgan and Kickham (1999) and extending over more measures of government behavior (such as user fees and property tax revenue) again find no difference between the city government types. In Farnham (1984) the relationship between the form of government and city expenditures were estimated in a demand for local spending type model. In this study is was found, contrary to many of the other studies, that the structure of government did make a difference in some specifications, but not in others suggesting that the use of median voter type models may be inappropriate when there is a city manager. Feiock, Jeong and Kim (2003) investigate if council-manager forms of local government are more insulated from political pressure mayor-council type of cities.

The argument is that in council-manager cities the professional standing of the manager and is not as subject to narrow special interests as governments dominated by mayors may be. They find that the two types of government do behave quite differently! V for example, the council-manager cities are more likely to use financial incentives to attract new firms and the size of the local government debt had a greater influence over policies under a mayor dominated local government than under a manager dominated type of local government.. Estimation model and results It is from the two papers by Gleaser and his colleagues that we being our investigation of the role of the taxes and the structure of local government on population growth.

We first estimate the following model: Growth i = f'O 0 + f'O 1 Rain i + f'O 2 Tempi + f'O 3 Cars i + f'O 4 Educ i + f'O 5 Manuf i+ f'O 6 Tax Share if'O 7 Central City i + f'O 8 Northeast i+ f'O 9 South i+ f'O 10 West i Where: Growth i = Percentage of Population Growth rate of city i from 1980 to 1990 and is calculated as follows: Growth i = 100 (Pop 2000 - Pop 1990) / Pop 1990 Rain i = Average annual precipitation of 1990 in city i measured in inches. Temp i = Mean July temperature of city i in 1990 measured in degrees Fahrenheit. Cars i = Average number of vehicles per household in city i in 1990. Educ i = Percentage of persons 25 years and older in city I in 1990 with college degree or higher. Manuf i = Percentage of civilians in city i in 1990 employed in manufacturing. Central City i = 1 if the city was the central city of a Metropolitan Statistical Area Tax Share i = Local tax per capita in city i by 1990-1991 divided by total local spending.

We also add dummy variables to the model in order to deal with qualitative characteristics, as we would like to study of how geographical or regional areas affect growth in particular cities. Therefore we try to differentiate from previous Growth model by including dummy variables of Regional areas in USA to the model based on data from Census Bureau Regions and Divisions which identifies four census regions: the Northeast, the Midwest, the South, and the West. ; We include in the model all cities greater than 100,000 in population in 1990. We define the percentage of total spending from local taxes as the tax share of a city. We expect to find that there is an inverse relationship between the tax share a city has and population growth because the citizens may, in a Tiebout sense, move to cities that are tax exporting. In a sense our tax share variable is an attempt to measure the marginal cost of city services as a share of the total cost.

Including the local tax share and the central city variable is the first modification to the model presented by Gleaser, et. al, (2001) The results are presented in Table I, we find no relationship between city tax and population growth however we do find that central cities in MSA's do have a smaller population growth than suburbs of MSA's. The other coefficients are very similar in magnitude and sign as compared to Glaeser, et. al, (2001). We now consider the role of the political structure of local governments on economic growth. Cities are classified as being of one of three types. Mayor type cites are ones in which there is not a city manager, general manager type cities are ones in which the is a city manager and the city manager is under control of the mayor and, finally, council manager type cites are those in which both mayor and city councils have some control over the actions of a city manager. Using the motivations discussed above we believe that in cities without city managers the mayor will forced to be more responsive to the voters and will be more constrained.

We fell that this will allow the views of voters to more closely be represented in the political process than in the political structure associated with city managers. The city managers may create a principal-agent type problem between the desires of the population and city policy outcomes. We test for two different effects on the political structure on population growth. First, we include two dummy variables which are, in the first case, equal to one if the city has a strong mayor type of government and zero otherwise and in the second case the dummy is equal to one if the city has a general management form of government and zero otherwise. The results of the above specification are presented in Table II. We find some interesting effects when we include the intercept and slope dummy variables.

Under the general management system (where the mayor, but not the city council) has control over the manager has neither a fixed effect nor an interactive effect with the tax share variable. However, in mayor dominated cities, ones without a city manager) growth was significantly less but the marginal impact of being able to translate tax shares to growth was positive for the mayor form of government. This is a surprising result, what it may indicate that while the strong mayor form of local government is not conducive to population growth that the mayors are better at translating the local funds into growth! This may be consistent with the argument discussed above that mayors, because they are forced to be more responsive to the voters, are better able to translate what local money they do get into policies that, at least on the financial variable, promote growth. We now turn the question of the type of local government around and ask if individuals are drawn to a particular type of local government among other factors. First an index is created which takes on the value of 2 if the city is a strong mayor type city that does not have a city manager, takes on the value of 1 if the city is of the general manager type, with the city manager reporting to the mayor, and finally the index takes on a value of zero when the city has a city manager that is responsive to both the mayor and the city council.

Then, we estimate as a ordered log it the city government type selection choice. We hypothesize the following model: Index i = f'O 0 + f'O 1 Growth i + f'O 2 TaxSharei + f'O 3 Income i + f'O 4 IncH erf i + f'O 5 UR i+ f'O 6 Tax Share if'O 7 Northeast i+ f'O 8 South i+ f'O 9 West i The results or the ordered log it model are presented in Table. IV. Summary and Implications We begin our concluding section with a quote from Marc Moral, former mayor of New Orleans and the President of the National Urban League when commenting on the difference between a strong mayor type local political system and one with a city manager on National Public Radio's Talk of the Nation: ! K. And in a strong mayor system, you probably had less bureaucratic finger-pointing, less buck-passing, less of the kinds of things that sometimes characterize gridlock in government!

K! KI would argue (strong mayor) is the better form of government, because it gives the mayor an opportunity to get in and focus on getting results, getting things done, because ultimately, that's what you! |re judged by. This paper seeks, in part, to determine it there is a differential impact of the form of local government on population growth in US cities during the 1990's.


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