Tiebout, Time, and Transition in the Structure of Local Government in U.S. Metropolitan Areas

Abstract

Citizens in U.S. metropolitan areas receive goods and services provided by sub-county governments that include municipalities/townships, school districts, and special districts. Beginning with Tiebout, economists have theorized that economic factors play an important role in determining the observed variation in local government structure across U.S. metropolitan areas. Earlier cross-sectional studies have shown that greater variation in the economic and demographic characteristics of residents, holding all else constant, exerts a positive effect on the number of local governments in a metropolitan area at a point in time. Here, we examine the effect that a change in the variation in these economic characteristics has on the change in the number of local governments over the decade 1982 to 1992. We find evidence that in even the relatively short period of ten years, increased variation in household income in a metropolitan area leads to more, or smaller, local school districts and special districts within a metropolitan area. Our findings are consistent with Tiebout's model and offer further evidence in support of the theory that has become the cornerstone of economic thinking on local public finance.