1.Texas currently has a system of state aid to school districts where state aid varies inversely per student with the property wealth per person of the school district.That is, school districts in areas with lower property values receive more state money per student than do districts with higher property values.Now the state government is considering doing the same thing for cities and towns for all publicly provided goods.The proposal has two parts:

a.Eliminate the (Texas) constitutional ban on a state-wide property tax.That is, the state will levy a property tax at a constant rate throughout the state, and local property taxes will be eliminated.

b.Then the state will distribute the entire proceeds of the property tax back to the cities, towns, and county governments.The amounts will be adjusted, however, so thatgovernments with higher property value per resident will receive less money per capita than governments with lower average property value per resident.

The objective of the proposal is to make the distribution of public services (such as fire and police protection, trash pick-up, roads, and local courts and jails), more equal across the state.Evaluate this proposal on three levels, and then consider an alternative policy:

a.Consider the incentives of the local governments to provide services efficiently, and at the efficient level per resident.

b.Evaluate the proposal as to the effects on property values.What will be the incidence of the state-wide property tax?

c.Evaluate the impact on voters.That is, will they have good information to elect leaders that provide their preferred level of publicly provided goods, or not?

d.Would it be better to eliminate the property tax, and instead impose a progressive income tax that is used solely to fund the local governments.The local governments would then get equal allocations per capita (this is essentially the system used in Norway).