Abstract
Previous cross-sectional studies of public expenditures have assumed that desired public expenditure is a monotonie function of income and therefore, when only median family income is included in the expenditure equation, its coefficient can be used to estimate the income elasticity of individual demand for public services. This paper develops a theoretical explanation of why desired public expenditure may be a U-shaped, rather than a monotonie, function of income. Unlike the specification employed by Brown and Saks (1983), the level of family income at which the minimum point of the U-shaped function occurs depends on the community's tax base. Empirical results reject both previous models which assume that demand is monotonie and those which assume that demand is U-shaped with the minimum point at a fixed level of income.
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