Rent-Seeking and Municipal Social Spending

Abstract

The term rent-seeking refers to special interest group efforts to seek special benefits at little or no cost to themselves. Because government spending has the potential to create both costs and benefits for taxpayers, fiscal policy is commonly viewed as a primary arena of rent-seeking activity. At least five different theories of nineteenth-century American urban development fit this general rubric. Each theory predicts different winners and losers as well as different underlying strategies and distributions of interests incumbent upon municipal decision making. This study uses two-wave panel data on special interest group representation and municipal social spending to examine the validity of these different theories of rent-seeking. Though all such theories share in commonan emphasis on self-seeking, this study points to the role of competition between different sectors of the local economy as a motivating force for the formation and mobilization of special interest group organizations. This finding contrasts with those rent-seeking theories that predict widespread cooperation among communities and/or classes in pursuit of common goals. Suggestions for future research on this topic are offered as well.