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State Restrictions Tax and Exemption of Local Governments

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Part 1 - What are the effects of States restricting tax-exemptions on local governments? Why is this done?What is the argument for this?

Part 2 - What are the specific effects of restriction of tax-exempt bonds by state's on local governments when the local government has high debt and the state government has low debt?

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Solution Summary

Arguments for State governments restricting tax-exemption of local governments are presented.

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Part 1

The effects of States restricting tax-exemptions on local governments are to increase the cost of raising capital for local government projects, decrease the competition for State bonds issued in the tax-exempt markets, local projects cancelled or postponed, more State projects able to start, and political pressure from the local governments on the State government to help finance local capital projects, shifting more power from local governments to the State government, etc. This is probably a power play by the State ...

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