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Tax Exemption and Resource Allocation: Implications for Prices, Production, and Factor Choice

Tufts University

The exemption of coupon payments by state and local governments from federal income taxes in the United States is examined from the vantage point of its effects on resource allocation—that is, its impact on the consumer's choice between goods produced privately and goods produced by the local government sector, on the choice between capital and labor in each sector, and on the relative prices of both goods and factors of production. The results raise questions about the value of tax exemption as a method of subsidizing local government provision of services.

Public Finance Review, Vol. 12, No. 3, 347-364 (1984)
DOI: 10.1177/109114218401200304


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