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Why would you need to raise taxes to pay off bonds? Why isn't the increased revenue from the new residents' taxes sufficient? If your population doubles, sure
by davmre 10y ago
Why would you need to raise taxes to pay off bonds? Why isn't the increased revenue from the new residents' taxes sufficient?
If your population doubles, sure you need to sell enough bonds to double your infrastructure, so the annualized cost (labor + amortized capital) of providing Government Services will double. But your tax base also doubles, so as long as the new residents pay at least the average tax rate (and wealthy gentrifiers usually pay higher rates), you'll collect double the revenue and everything balances out.
- jedberg 10y ago> Why would you need to raise taxes to pay off bonds? To make the interest payments? A bond is a loan and it has to be paid off. The taxes from the future residents will only cover the current costs, not the interest.
- davmre 10y agoAgain that's a wash, though, as long as interest rates on new bonds are not significantly higher than those the city is already paying on its existing infrastructure bonds (or on future bonds that will be sold when necessary to repair/replace the current infrastructure as it falls apart). Sure, high interest rates would provide an incentive against new infrastructure investments, but rates over the past few years have been historically low. (Also, the effect of interest rates is at most a small single digit percentage, so even if it's not exactly a wash, those costs could be cancelled out by other effects, e.g., the returns to scale on denser infrastructure - you can generally serve 2x the population at less than 2x the cost, but you still get to collect 2x taxes).