fortunes of large US cities. If public services demands are inelastic with respect to income, tax rates must change. The consequence has been significant variations in tax rates over the past 30 years, sufficient to reveal an underlying sensitivity of economic activities — most likely those of businesses and upper income households — to tax changes. Second, Ladd suggests that firms' investment and location decisions may have become more sensitive to taxation in recent years. This certainly seems reasonable for large cities as the service and communication 'revolutions' have reduced the agglomeration advantages of large-city locations. Finally, Ladd notes the failure of previous econometric studies of tax effects to control adequately for important cross-state, cross-region or cross-location variations in zoning laws, and other 'unobservables' may conceal the true effects of taxes on economic activities within a given locality. The within-city time-series analyses in our study are one attempt to minimize these problems. It is encouraging that our estimated effects of tax rates on tax base reported here are well within the elasticity bounds reported in the 1991 survey by Bartik and summarized in Ladd's review. Perhaps there is a consensus emerging on this important issue after all.
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