State Policy and Local Residential Sorting: Are Tiebout Voters Hobbled?

Martin P. Farnham, University of Michigan
Purvi Sevak, City University of New York

Study of residential location by households in the Health and Retirement Study reveals that while cross-state movers experience significant fiscal gains in the form of decreased exposure to school spending and lower property taxes, within-state movers experience little such fiscal gain. The apparently limited ability of empty-nest households to reduce their exposure to public school spending and associated local taxes through near-distance moves presents a serious challenge to the Tiebout hypothesis that individuals "vote with their feet" to bring about efficient local public good provision. In this paper, we will examine the effect of state policies such as school finance equalization and property tax restrictions (such as California's Prop-13) and property tax exemptions (such as circuit breakers) on the ability and incentive of older households to adjust their fiscal bundle through local moves.