T Should Philadelphia ’ s Suburbs Help Their Central City ?

Bob Inman is Miller-Sherrerd Professor of Finance and Economics, Wharton School, University of Pennsylvania. When he wrote this article, he was a visiting scholar in the Research Department of the Philadelphia Fed. he United States is unique in its commitment to local government as the primary provider of essential public services and in its use of local taxes as the primary means for paying for these services. The Philadelphia metropolitan area is typical of the U.S. pattern. But the city of Philadelphia faces the burdens and responsibilities of all older central cities, including a higher proportion of poor residents than its surrounding suburbs. Such circumstances lead the city to impose higher taxes on city residents, workers, and businesses. Raising revenues through higher taxes, however, becomes self-defeating when tax rates drive people and businesses away. The result is a weaker city and regional economy. How can Philadelphia strengthen its finances? Bob Inman proposes a targeted program of suburban assistance to lower the commuter wage tax and presents evidence that such a program is likely to benefit city and suburban residents alike.