Leviathan or Public Steward? Evidence on Local Government Taxing Behavior from New York State

Abstract

Abstract Fiscal federalism argues local governments compete to provide optimal tax-service bundles as responsible public stewards. In contrast, Leviathan theories argue tax and expenditure limitations (TELs) are necessary to make local governments fiscally responsible. We analyze local taxing behavior in New York State, which implemented a levy limit in 2012 that allows legislative overrides with 60 percent vote of the local governing board. Our 2017 survey of all general-purpose local governments measured fiscal stress, service responses, and local political attitudes and found 38 percent of municipalities voted to override. Logistic regressions show local governments that have more fiscal stress, weaker property tax bases, higher need, and higher employee benefit costs are more likely to override. These findings support fiscal federalism, as local governments that override are pushing back against state policy in order to respond to local needs. TELs introduce unnecessary rigidity and run counter to the precepts of fiscal federalism.