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Special District Formation: Evidence from Panel Data

PAQ, Vol. 41 No. 3, (2017)

This paper empirically examines the formation of special districts in the United States. It investigates, in particular, the adoption of tax and expenditure limitations (TELs) on local governments to determine how they have motivated special district formation. The paper extends the research agenda by reporting an analysis for TELs and special district formation through the post-Proposition 13 tax revolt in the states. Theory on special-purpose governments and, on TELs, guides the research – literatures interested in the impact of fiscal institutions on local government reorganization. Main findings are that adoption of one type of TEL – general limitations – is encouraging the formation of special districts with taxing powers. Substantively, adoption of general limitations raises the number of taxing districts by approximately 13 percent. A flexible model for panel data, inclusive of fixed effects and time trends, turns out to be crucial for identifying estimates for the role of TELs in special district formation.

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