Regional Tax-Base Sharing: An Analysis and Simulation of Alternative Approaches

The metropolitan tax-base sharing program initiated by the Minnesota legislature in 1973 has been called an innovative solution to the problems of fiscal disparities and of inefficiencies in the location of economic activity. However, the close similarities between base sharing and state equalizing aids have not received wide recognition. In order to effect a comparison of these approaches, it is shown how the Minnesota base sharing program can be expressed as an equalizing grant formula. This allows an analysis to be made of the differences and similarities in program structure and leads to the development of a model base-sharing formula designed to correct some of the major deficiencies in the Minnesota plan. There are several program reforms that are conceptually sound and also politically feasible.