Buying their votes? A study of local tax-price discrimination

Abstract

A population's demographic composition may affect political support for various public services. This article examines whether the aging-in-place of local residents decreases financial support for public schools in the United States. I expand on previous empirical work by examining whether tax-price reductions offered to elderly homeowners moderate their effect on local school revenues. The results reveal that an aging population structure substantially decreases school revenues, unless elderly homeowners receive state-financed reductions in their local tax-prices. Sizable differences hold even when comparing school districts located near each other but on opposite sides of state borders. Given the imminent aging of the population structure in the United States and many other developed countries, governments' targeted tax reduction policies could have important effects on equilibrium school revenues. (JEL I22, J14, H71)