Finishing up City Development

1
Finishing up City Development
2
Figures 4-7, 4-8

• Labor costs may vary across areas.
• We can perform the same exercise with labor costs
  and transport costs that we did with resources,
  earlier.
• This is important, because wages may vary within
  a metropolitan area. Lets review (Excel file).

3
Saturn Plant

• They could locate anywhere. Whyd they locate in
  Spring Hill TN?
• Bartik et al looked at
• transport costs
• labor costs for local suppliers
• state and local taxes (before subsidy)
• total costs

4
Estimated Cost (/car)

• Transport
• 426
• 423
• 419
• 417
• 430
• 413
• 427

• State, Loc Tx
• 118
• 106
• 134
• 162
• 116
• 168
• 169

• Local Labor
• 159
• 186
• 172
• 202
• 244
• 209
• 219

• Total
• 703
• 715
• 725
• 781
• 790
• 790
• 815

• City
• Nashville, TN
• Lexington, KY
• St. Louis, MO
• Bton, IL
• Kalamazoo, MI
• Terre H, IN
• Marysville, OH

5
Effects of Taxes and Public Services

• Do property taxes and public services make a
  difference.
• Example
• Business wants to open. Has its choice between
  City D, with high property taxes, and
• City E, with low property taxes.
• Do these taxes make a difference?

6
Effects of Taxes and Public Services

• Solid evidence that, all else equal, local taxes
  have strong negative effects on local business
  growth. Why?
• What does the all else equal mean?
• Agt It depends what the people who levy the taxes
  are doing with the money they raise.

7
Elasticities

• Remember elasticity! ? Responsiveness!
• Elasticity of y with respect to x means that a 1
  increase in x may increase y by 0.1, 1.0, or
  10.
• How do we calculate it?
• Exy (Dy)/(Dx)
• Exy (Dy/y)/(Dx/x)

8
Elasticities

• Remember elasticity!
• Suppose there is a local sales tax of 1.
  Suppose that you raise it to 1.5. What was the
  percentage increase?
• Ansgt Dt/t (1.5 - 1)/1.25.
• Why 1.25?
• AnsgtMid-point!
• So, Dt/t (.5/1.25) 0.4 or 40.

9
Elasticities

• Elasticity of intermetropolitan business activity
  (A) with respect to local tax (DA/A)/ (Dt/t)
  varies between -0.1, and -0.6.
• Elasticity of intrametropolitan business activity
  with respect to local tax varies between -1.0,
  and -3.0.
• Why are they so different?

10
Elasticities

• What about simultaneous increases in taxes and in
  public expenditures?
• Agt It depends!
• How are they spending the money?

11
Impact of Wages and Unions

• Bartik finds a wage elasticity of -1.0 to -2.0.
  What does this mean?
• Unions typically raise wages.
• Unions may often increase labor productivity.
  What does the joint effect suggest?

12
For next time,

• Move on to Ch. 5.