PROPERTY TAXES AND POLITICIANS: EVIDENCE FROM SCHOOL BUDGET ELECTIONS

Recent studies provide mixed evidence on whether electoral pressure influences policy choices. This study examines this question in a unique setting: local school districts where the policy outcome, property taxes, has unusually high visibility and salience. We exploit the sharp discontinuity created by the annual majority-rule school-budget elections in New Jersey's school districts. Using panel data from over 3,600 district-by-year elections, we find that local politicians are responsive to a modest change in support for a budget (around the 50 percent threshold) resulting in a reduction in contemporaneous property taxes (by $180 per pupil or 1.7 percent) as well as the proposed tax bill for the following year. However, these tax reductions do not generally persist because budget rejections also trigger subsequent increases in both voter turnout and support for school spending, suggesting the stability of Tiebout equilibria.