Are Overlapping Local Governments Competing with Each Other When Issuing Debt?

Abstract

Local public services are produced through various overlapping jurisdictions. This study examines how the issuance of municipal general obligation bonds is affected by the tax policies of overlapping local governments. The findings challenge the hypothesis that the shared tax base would be overused in a common-pool resource scenario. Instead, the empirical results show that the issuance of general obligation bonds is more likely in jurisdictions where counties and school districts make more intensive use of the property tax. These findings highlight the importance of the signals local governments receive from their overlapping neighbors regarding voters’ demand for additional public spending.