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An Introduction to State and Local Public Finance

Thomas A. Garrett, Assistant Professor
Department of Agricultural Economics
306A Water Hall
Kansas State University
Manhattan, Kansas 66506

(785) 532-3526
Fax: (785) 532-6925
email: tgarrett@agecon.ksu.edu
John C. Leatherman, Assistant Professor
Department of Agricultural Economics
331F Waters Hall
Kansas State University
Manhattan, Kansas 66506

(785) 532-4492
Fax: (785) 532-6925
email: jleather@agecon.ksu.edu

Table of Contents
Overview
PART 1 - GOVERNMENT GROWTH, TAXES AND TAX THEORY
I. The Growth of State and Local Governments - Revenues and Expenditures
    A. Evidence on the Growth of State and Local Governments
    B. Explaining the Growth of State and Local Governments
    C. The Changing Responsibilities of State Governments
        i. Education
        ii. Highways
        iii. Public Welfare
        iv. Health Care
        v. Corrections
        vi. Other Expenditures
    D. Conclusion
II. Funding State and Local Government - State and Local Taxes
    A. State and Local Government Revenue
        i. State Government Revenue
        ii. Local Government Revenue
    B. The Sales Tax
        i. State Sales Taxes
        ii. Local Sales Taxes
        iii. Generating Sales Tax Revenues - Issues for State and Local Governments
               a. Taxing Electronic Commerce
               b. Cross-Border Shopping
    C. The Personal Income Tax
        i. The Marginal Tax Rate
        ii. The Average Tax Rate
        iii. Tax Incidence
               a. Regressive, Progressive and Proportional Taxes
    D. The Corporate Income Tax
    E. Excise Taxes
    F. Property Taxes
        i. Computing the Property Tax
        ii. Advantages and Disadvantages of the Property Tax
    G. Other Revenue Sources - Intergovernmental Revenue, User Fees and State Lotteries
    H. Conclusion
   A. Distributional Effects of Taxation - Tax Incidence
        i. Single-Market Analysis of Tax Incidence
               a. A Unit Tax on Buyers and Sellers
               b. A General Rule of Tax Incidence
    B. Efficiency
        i. Computing the Efficiency Loss From a Tax
               a. Efficiency Loss from a Unit Tax
               b. Efficiency Loss from an Ad Valorem Tax
        ii. The Efficiency/Equity Tradeoff
   C. Two Models of Optimal Taxation
        i. The Ramsey Rule
       ii. Tax Rates, Tax Bases and Tax Revenues - The Laffer Curve
               a. Empirical Estimation of the Optimal Tax Rate using the Laffer Curve
   D. Conclusion
PART 2 - SELECTED APPLICATIONS IN PUBLIC FINANCE
IV. Revenue Forecasting
   A. Introduction
   B. The Forecasting Process
   C. Forecasting Methods
        i. Qualitative Forecasting Methods
               a. Judgemental Forecasting
        ii. Quantitative Forecasting Methods
               a. Time Series Approaches
               b. Descriptions of Time Series Forecasting Models
                    1. Naive Forecasting
                    2. Moving Average Models
                    3. Exponential Smoothing Models
                    4. The Holt Model
                    5. Damped Trend Exponential Smoothing
                    6. Holt-Winter’s Linear Seasonal Smoothing
                    7. Box-Jenkins ARIMA Models
                    8. Causal Models
   D. Conclusion
V. Cost-Benefit Analysis
   A. Steps in Performing Cost-Benefit Analysis
        i. Identifying Stakeholders to the Analysis
        ii. Identify Alternative Policies to be Included
       iii. Identify Likely Physical Impacts and Indicators
        iv. Predict the Impacts over the Life of the Project
       v. Monetize All of the Impacts
       vi. Find the Present Value of Dollar Amounts
       vii. Add up the Costs and Benefits
        viii. Perform a Sensitivity Analysis
        ix. Select the Preferred Alternative
    B. Theoretical Foundations in Cost-Benefit Analysis
   C. Net Present Value
    D. Estimating Values
        i. Social Surplus
        ii. Estimating Values in Cost-Benefit Analysis
               a. Values from Observed Behavior
                    1. Project Revenues as Benefits
                    2. Estimating Demand Curves
                    3. Market Analogy
                    4. Intermediate Goods
                    5. Asset Values
                    6. Hedonic Pricing
                    7. Travel Cost Method
                    8. Defensive Expenditures
               b. Contingent Valuation
              c. Shadow Prices
   E. Common Errors in Cost-Benefit Analyses
        i. Errors of Omission
        ii. Forecasting Errors
       iii. Measurement Errors
        iv. Valuation Errors
        v. Indirect Impacts
        vi. Double-counting
       vii. The Value of Labor
    F. Conclusion
VI. Fiscal Impact Analysis
    A. Planning Approaches
        i. Projecting Population
       ii. Projecting Costs
        iii. Projecting Revenues
        iv. Considerations In the Use of Planning Methods
   B. Case Study Approach
        i. Summary of Procedures
    C. Econometric Approaches
        i. Econometric Specification of Public Sector Supply and Demand
        ii. Conjoined Modeling Approaches
   D. Conclusion
VII. Chapter Conclusion
References

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