2025 Fall Seminar Series Seminar: Ikhwan Kweon & Tangchen Liu University of Kentucky

Direct vs. Representative Democracy in the Design of Tax and Expenditure Limits

Presenter: Ikhwan Kweon

Abstract: In policy design, decision-making authority can be delegated to either citizens or their representatives. Do they make different decisions under the same policy? How do their different decisions shape policy outcomes? To answer these questions, this paper analyzes New York State’s property tax levy limit, effective since 2012. New York local governments except school districts may override the levy limit with governing body approval, whereas school districts require citizen approval. Under the median voter theorem, governing bodies are expected to make override decisions similar to those of citizens. If their decisions diverge, two possibilities arise: governing bodies may pursue self-interest or act in the public interest with better information. To assess these possibilities, this study categorizes governments by fiscal condition. Overrides should be more common in fiscally strong governments if officials act on revenue-maximizing self-interest, and in weaker ones if they aim to promote public welfare. Using an event study design, we find that governing bodies in counties and cities are more likely than citizens in school districts to pass overrides, ultimately resulting in higher property taxes. This tendency is more pronounced among financially stronger governments than among weaker ones. These results suggest that, under the property tax levy limit, representatives make different decisions than citizens to pursue self-interest rather than the public interest.

The Impact of the Tax Cuts and Jobs Act on Support for Schools

Presenter: Tangchen Liu

Abstract: The 2017 Tax Cuts and Jobs Act (TCJA) increased the federal standard deduction and instituted caps on state and local taxes (SALT). These changes decreased the number of taxpayers itemizing deductions and reduced the amount some taxpayers can deduct from their federal income taxes, thereby raising the effective cost of education expenditures for these taxpayers. This may have ultimately led to reductions in the support for these expenditures and the property taxes that primarily financed them. In this paper, using data from Michigan and Texas, we examine the impact TCJA had on voter support for local school district bond referenda. To the extent that TCJA had an impact on support for local school funding, it may have unintended consequences on educational expenditures and ultimately student learning (Jackson, Johnson, and Persico, 2015).