Wednesday, December 2, 2009

Do Recessions Create Captive Resident Taxpayers

Casey Mulligan in the New York Times Economix section and on his blog, Supply and Demand (in that order), "Recession Creates a Captive Audience of Taxpayers" argues that the housing crisis decline in the ability to sell a home and in geographic mobility creates a captive audience, which allows local municipalities to raise taxes unimpeded. I posted a comment, below, that argues just the opposite. Governments will be more restricted in their ability to raise taxes.
Al Hirschman, "Exit, Voice and Loyalty."

There is a trade-off between emigration (exiting), and political dissent (voice). As more people can emigrate, there is little motivation for them to use politics to protest the local government's actions. Those that remain are the most captive and most tolerant of local government policies.

As the populace loses its ability to exit a locality with unpleasant governmental actions, there will be increased reliance on political protests and dissent and increased motivation to vote out of office those who promote undesirable actions.

If mobility does not increase soon, I think you will see just the opposite of your prognosis. More voices and protests will be heard at the local government level. More unhappy citizens will be engaged in local politics and motivated to vote. Local governments will be forced to undo many of the burdens they placed on their citizens.

People have cut expenses under their control, such as autos, gasoline, restaurants, clothes, vacations, travel, credit card debt, etc. People already cut consumption expenditures. The next available phase of cuts will be local government expenditures to curtail the continuing increase in local taxes and fees.

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