Spatial Differences in the Demands for Local Public Goods

Abstract

Differences in the mix of public goods across locations are apparent. Particularly sharp are the differences between public spending habits of central cities and suburbs. For 37 of the largest SMSAs in 1977, the ratio of per capita educational expenditures in central cities to the per capita education expenditures in suburban areas was .93 and the comparable ratio for per capita noneducational expenditures was 2.01.1 Relative to suburban areas, central cities have spent more of their revenue on noneducational public goods and less on education. Although these differences have been attributed to various demandand supply-side factors, analysts have placed considerable emphasis on the demand-side determinants of local expenditures. Researchers such as Borcherding and Deacon (1972) have estimated the demands for local public goods by focusing on the consumption behavior of the median voter. The partial equilibrium nature of these earlier models, however, missed the potential interdependencies between the demands for public and private goods. More recently there have been attempts to develop a more complete general equilibrium model of public choice which incorporates the interaction between public and private goods. Perkins (1977) presents a general equilibrium extension of the Borcherding and Deacon framework by testing the cross-price effects between various local public goods. His empirical results strongly suggest that there is substitutability among certain local public