Home rule and municipal revenue stability: New evidence from Texas

Abstract

Scholars have long debated whether home rule powers help improve municipal financial well-being; however, a consensus has yet to be reached. This study advances the home rule literature by causally estimating the impact of home rule in Texas on municipal revenue stability. To accomplish this, we employed a difference-in-differences estimator coupled with event-study specifications on a 40-year-long panel data set. This approach revealed strong empirical evidence that cities adopting a home rule charter had a significant reduction in the probability of experiencing revenue decline. This finding remained robust with multiple measures of revenue change, an alternative sample, and different model specifications. Moreover, we found that home rule cities’ revenue stability was likely to come from their increase in property taxes.