Population growth in growing and declining cities: the role of balanced-budget increases in local government spending

Abstract

Tiebout sorting describes people moving to communities that most closely match people's preferences over taxes and public services. This Tiebout equilibrium is disturbed when cities vote to increase taxes and spending. We study the effect of increased taxes and public spending on population growth in growing and declining cities. Using regression discontinuity to compare otherwise similar cities, we find increasing local government taxes and spending by 15% can increase population growth rates. The increase is only evident the year after the vote. For the general sample, the increase is 0.4 percentage points, but it is 0.8 percentage points (25% of a standard deviation) for growing cities with below-median percentages of elderly residents. In cities with declining population, passing large tax levies increases population growth rates by 0.9 percentage points the year after the vote—33% of a standard deviation. Instead of cutting taxes and services, cities with declining population might instead consider providing additional public services to stem population declines. Most migration studies use a fairly large geographical unit like states, counties, and urban areas; our study contributes to the literature by studying migration at the local government level (cities, villages, and townships).