Choosing the Best Mix of Taxes for Philadelphia – An Econometric Analysis

Econsult was retained by the Philadelphia Tax Reform Commission (TRC), to conduct an econometric study of the likely impacts of potential changes in the tax rates of the City of Philadelphia. We do this by conducting an econometric analysis of historic data to estimate the size of the supply side effects, if any, relating to changes in Philadelphia’s wage tax, property tax, and gross receipts tax rates. We then use those estimates as the basis of a simulation model that we can use to assess the likely impacts of changes in tax rates.

This approach is commonly used in economic impact analyses to compare alternative economic programs and to provide a coherent methodology that can be used to evaluate the economic ramifications of a given policy action. The goal of the study is to provide objective information, which will assist the Philadelphia Tax Reform Commission (TRC) in the development of its policy recommendations. The estimation results indicate that reductions in tax rates expand the base of the particular tax being reduced and that changes in wage and gross receipts tax rates have cross-base effects as well as significant impacts on the number of jobs in the City.

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