Taxing Over Tax Limits: Evidence from the Past and Policy Lessons for the Future

It is generally thought that across-the-board tax limits, white encouraging fiscal restraint, create hardships for jurisdictions with above average and uncontrollable needs. Because of the recent imposition of most limits, the conclusion is difficult to confirm empirically. This article provides a test of the conclusion based on a study of New York State city school districts where limits long in effect were suspended between 1970 and 1978 because of unusual local behavior and legislative action. Because some, but not all, districts took advantage of legislatively granted authority to tax beyond their limit, art empirical investigation can be used to explain this behavior. The results of the analysis, which show that low ability to pay, low inter-governmental grants, and high needs account for much of the behavior of districts that exceed limits, are helpful in designing flexible tax limits.