Urban Economics Short Essays

Urban Economics Short Essays Name Course Date Question A: Fiscal needs of local governments and property taxes Property tax and intergovernmental grants are the most important sources of revenue for the local governments and they are levied on residential, commercial, and industrial property. Since the local governments have the legal authority to levy taxes and borrow, property tax plays an important role in public financing to support public expenditure nonetheless, the governments have had to grapple with how to fill the fiscal gap between spending needs and revenue capacity when there is clamor for lowering taxes. The homeowners, some legislators, and real estate stakeholders clamor for less land and property taxes, despite this being an important source of revenue since it will reduce the taxpayers’ burden. There are negative consequences of the local governments collecting low revenues from the property taxes because of inability to meet their financial obligations and there is overreliance on the state/ federal governments and even heavy borrowing. On one hand, the local governments, which have the most contact with the residents are often the visible face of the state, have few financing options to provide quality goods and services. On the other hand, even when there transfers from the federal government, the local governments tend to be more efficient in spending when they collect most of their own resources. The transfers are sometimes spent inefficiently or wastefully. Since there is decentralization of public services through the local governments the public officials look into how best to improve service delivery The perception that there are few who pay taxes and that money is wasted reduces support for people paying taxes, and the largest proportion of taxes is from those with the most valuable homes, mostly the richest. When it comes to increasing tax the question of what is fair is contentious, since the rich bear the burden, but the benefits are distributed to more people through the local government expenditure. When taxes are imposed people tend to change their behavior to reduce and avoid the tax burden, which results in the tax being shifted to other people. Generally, taxes reduce investments in the housing markets because of the higher costs, and the residents are directly affected when the population increase, but the supply of housing is constrained. As such, imposing or raising property taxes can reduce the local governments, while increasing the housing costs. According to O'Sullivan, (2018) property tax generates approximately 75% of the local tax revenue and 50% of municipal revenue. When the service provided by the local governments are visible and useful, it is more likely that there will be voluntary compliance with the payment of taxes. Political perceptions on the effectiveness of the state in the provision of public services financed with this tax play an important role on whether people support or oppose the property taxes. As such, changes in perceptions are one way to increase the tax morale of taxpayers at the local level. There are incentives to move to desirable locations with low taxes, and the local governments ought to consider this when implementing the property taxes to av...