Intermunicipal Competition, Budget-Maximizing Bureaucrats, and the Level of Suburban Competition

Abstract

Government in the United States is often perceived as being too large. Theoretically, competition in the political marketplace is a corrective to such overly large government. For example, competition between municipal governments in metropolitan regions long has been identified as a potential means to limit the size of local government by simulating a quasi market for public goods and services. In this article I identify several sources of intermunicipal competition in polycentric metropolitan regions. I test empirically the effects of such competition on the size of suburban municipal budgets. I find that competition, as reflected in a greater number of alternate providers and by a wider range of choice in the tax price of local government, does in fact act as a restraint on the size of government by increasing the ability and incentives for residents and politicians to control the budget-maximizing tendencies of local bureaucrats.