Taking Charge: Should New England Increase Its Reliance on User Charges?

by Robert Tannenwald
January/Februrary 1990

New England relies less on user charges for its state and local revenues than any other region of the country. As a result, some policymakers maintain that increases in user charges would correct an "imbalance" in the region’s revenue mix. However, the national mix of state and local revenues is not necessarily the best mix for the states of New England. The degree to which a state should rely on u. ser charges depends on the priorities of its policymakers among competing principles of taxation, the conditions under which each principle favors user charges over taxes, and the extent to which these conditions exist within the state. Since each state has its own distinctive values and traits, the role of user charges in financing state and local government should vary across states.

This article explores the conditions under which user charges compare favorably to taxes according to the principles of efficiency, equity, and exportability. The author finds that, given conditions peculiar to New England, the region’s low dependence on user charges makes sense in terms of ~11 three principles. Moreover, in several instances where New England states do rely heavily on user charges to finance a particular public service, circumstances favor user charge financing.

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