Despite the many flaws and qualifications attached to the Tiebout Hypothesis, the idea that localities should compete with one another to attract residents became an article of faith among proponents of a smaller national government. From the 1980s onward, Tieboutian ideas fueled the movement to shift taxing and spending policies away from the national stage and hand it over to states and municipalities. This culminated in the welfare reform legislation of 1996.
By this point, though, a growing chorus of critics pointed out a more unpleasant side to all of this. In the original version of the hypothesis, people voted with their feet. But what if some localities tried to keep certain people from arriving in the first place -- disabled people who needed special services, welfare recipients and others? As these critics pointed out, there would be a race to the bottom, with states cutting certain kinds of benefits, hoping to shunt dependent and needy people to more welcoming, higher-tax locales.
As the studies piled up, though, there was a growing awareness that simply cutting taxes and welfare benefits wasn’t going to magically attract well-heeled residents and keep out everyone else. In fact, a new consensus emerged. Yes, Tiebout’s “consumer voters” will factor in state income tax and local property tax burdens when considering a move. But the actual goods and services gained by moving – you know, those things paid for with taxes – also played a constructive role in their decisions.
Much of this research has found that the quality of the education system has been especially important, and may be as strong a factor as the relative tax burden. This may help explain a state like Massachusetts, which has very high taxes but the highest-rated public schools, isn’t losing population. States like Mississippi, which has low taxes but poor school systems, are suffering an exodus.
All of this has left us with a somewhat paradoxical conclusion: People like to move to places that have both lower taxes and great public services paid for by those taxes. What this means in practice is that residents don’t really object to taxes; they object to the inefficient use of taxes. States that are most efficient at delivering good public schools become the most attractive for prospective residents. And states that simply take a hatchet and cut everything, destroying schools in the process, like Oklahoma, are going to lose residents.
But these are subtleties largely missing from the breathless coverage of wealthy residents threatening to abandon high-tax states. They may well move. But their motives for moving, never mind the destinations they choose, aren’t going to be driven by a simplistic quest for low taxes.
But even Charles Tiebout could have told you that.
Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg Opinion.