Local Decision-Making on Capital Spending in US Cities (1980–2000)

Abstract

In the United States, government investments by states and localities decreased substantially during the last several decades. Substantial decreasing trend of capital investments is observed during the 1970s. Since then, the declining trend has persisted, but it is less skewed. Academic studies pay hardly any attention, however, to the gradual decrease in government investments since 1980s. Thus, the purpose of this study is to investigate the determinants of capital investments by local governments. Especially, under the scheme of fiscal decentralization since the early 1980s, fiscal behaviors of local decision-makers are becoming a more important element in local public service choices.To test nine hypotheses, a time series on 58 city governments is constructed for the years 1980–2000. 3SLS (three stage least squares) regression analysis is conducted because the relationship between the level of municipal capital expenditures and local debt outstanding is assumed to be simultaneous. The result shows that more independent fiscal decision-making power in a jurisdiction is associated with less capital spending.