Regional tax base sharing has the potential to enhance the efficiency and equity of metropolitan economies and public sectors. It is difficult to evaluate the efficiency implications of tax base sharing as implemented in the Twin Cities under the Fiscal Disparities Programme. However, the programme is structured in a way that reduces the incentives for inter-local competition for tax base and narrows tax rate disparities in the region (although this effect is rather modest). Equity outcomes are more clear-cut. Despite the fact that the programme's design ignores many general equity concerns, its net effect is a significant equalization of total local tax base. This effect has diminished slightly in recent years, especially at the lowest end of the tax base distribution, and exceptions to the pattern exist, but the overall association is relatively strong. Evaluating equity outcomes using a more general measure of local fiscal needs (the need—capacity gap) also shows fairly strong correlation between net distributions from Fiscal Disparities and local needs. Again, notable exceptions are evident — Minneapolis is the clearest example — but, on average, net distributions from Fiscal Disparities operate to relieve local fiscal stress in the region.
Proposals to extend Fiscal Disparities to residential tax base would enhance all of these relationships. Simulations show that the redistribution per dollar of shared tax base is greater for the residential tax base sharing programmes than in the existing programme. For instance, a proposal that would create a residential pool from residential assessments in excess of $150 000 would generate a tax base pool just one-third the size of the current business tax base pool but would narrow tax base disparities at the extremes of the distribution to a greater extent, on average, than the current programme and relieve local fiscal stress to roughly the same extent. This type of reform has shown itself to be relatively viable politically — one variation actually passed the Minnesota legislature in 1995 only to be vetoed by the Governor. However, such reforms still generate anomalies like those in the current programme: relatively low capacity/high need places that are net contributors to the pooled tax base and relatively high capacity/low need places that are net receivers. Simulations from the Twin Cities and elsewhere show that explicit consideration of these factors in distribution formulae is necessary to ensure that such inconsistencies do not occur.