Interjurisdictional Competition Research Articles

A Geographical Approach to China’s Local Government Debt

Since the 2010s local government debt has boomed in China because the government relies on debt financing for infrastructure investment. The debt mainly consists of the issuance of Chengtou bonds and later local government bonds. Using data from more than 300 cities from 2009 to 2020, this article maps its spatial dynamics to further the understanding of intergovernmental relations in the studies on local government debt. We find that, from 2009 to 2014, most cities had large bond-issuing amounts. The dynamics were affected by the economic stimulus target set by the central government and the interjurisdictional competition in borrowing among local governments. After 2015 the cities with better economies issued more bonds because the central government tried to match local government debt with local fiscal capacity to maintain financial security. The spatial dynamics show the increasing intervention by the central government in local fiscal income and expenditure, reflecting fiscal centralization. Fiscal centralization did not effectively contain the financial risk in the less-developed cities. Motivated by the competition, the less-developed cities did not use bonds efficiently and had higher ratios of bond issuance to fiscal income, experiencing higher financial risk.

The Theoretical Impact of Fiscal Decentralisation on National Income Inequality: Does Quality of Governance Matter?

There are long arguments among scholars about whether fiscal decentralisation increases or reduces national income inequality. The optimistic scholars indicate that the efficiency-enhancing effects of fiscal decentralisation to reduce income inequality are more likely to occur in high-economic-level regions since they have inter-jurisdictional competition, accountability, and revenue mobilisation. While the pessimistic view emphasised that fiscal decentralisation might increase income inequality because of low governance quality, which offsets the potential efficiency gains of decentralisation. The finding of this paper is that fiscal decentralisation cannot be optimistic or pessimistic, but after screening the empirical studies, it is based on three trends: the structure and design of fiscal decentralisation, the level of economic development, and the level of governance as a mediator.

Decentralized Environmental Regulation in a Model with Increasing-Returns-to-Scale

Abstract In economics, homothetic functions are generally used to represent production. Homogeneous production functions are a subset. A production function is homogeneous of degree α when all inputs are changed in the same proportion and resulting output changes by the αth power of the input change. Convention envisions homogeneity of degree 1, constant-returns-to-scale. Herein, we alter convention for increasing-returns-to-scale, α > 1. With aggregate increasing-returns-to-scale, symmetric regions, in a first-best Nash equilibrium, subsidize capital and overprotect the regional environment. Second-best fiscal structures are also examined. JEL Classification numbers: H20, H71, H73 Keywords: Environmental federalism, Inter-jurisdictional competition, Increasing-returns-to-scale, Homothetic functions.

State de-financialisation through incorporating local government bonds in the budgetary process in China

Abstract In China, state-led financialisation through local government financing platforms resulted in a surge in local government debt. To manage financial risk, the central state introduced local government bonds (LGBs) to replace the platforms as the main financing source for infrastructure investment. The issuance of LGBs is subject to a budgetary process. We argue that LGBs mark a turn to state de-financialisation, as the local state’s financial logic of maximising value extraction from the built environment is restricted by budgetary control. Through developing a database of LGB issuance in over 400 prefectural cities, this article reveals that local indebtedness determines the geographies of bond issuance, confirming the effect of the central state’s objective of restricting local government debt. The dynamics of state-led financialisation change from the inter-jurisdictional competition in infrastructure investment among local states through local government financing platforms to a hierarchical control of LGB issuance led by the central state using the budget. Our findings show that financial expansion may mean state de-financialisation and fiscal resources are not only used to promote state-led financialisation but also to enable state de-financialisation.

Reconciling the mixed evidence in the fiscal decentralization-government size nexus using panel quantile regression

This study reconciles the contrasting evidence in the fiscal decentralization-government size nexus by hypothesizing that the effect of fiscal decentralization is conditional on the distribution of government size. Using panel quantile regression with non-additive fixed effects and with instrumental variable, we find evidence to our hypothesis for sixty-five countries across four decades. Fiscal decentralization's impact on government size is negative in the lower quantiles due to inter-jurisdictional competition, while it is positive in the middle and upper quantiles owing to the efficiency hypothesis. The nature of heterogeneity is robust across an alternate and more composite decentralization indicator of fiscal autonomy as well. By accounting for ethnic fragmentation and democracy as transmission channels, this heterogeneous pattern is consolidated. Thus, the findings suggest the importance of methodological refinement and socio-political transmission channels in explaining the equivocal relationship between fiscal decentralization and government size.

Regional competition, rural pollution haven and environmental injustice in China

Under intense fiscal pressure, China's local governments raced against each other to offer business-friendly policies to mobile industries. Lax environmental enforcement was widely adopted across the country and many poor regions became havens for polluting factories. We argue that this adverse effect went deeper than the interjurisdictional competition argument. Within each jurisdiction, urban and rural communities engaged in a similar rivalry. Local governments, facing stronger societal environmental pressure from urban communities, prioritized urban environment and allocated fewer administrative resources to rural environment enforcement. As a result, polluting enterprises found refuge in the rural part of these jurisdictions. We merge a national firm registry database with a national survey of polluting enterprises firms and find strong evidence supporting this hypothesis. Our research extends the scope of the pollution haven hypothesis from an inter-jurisdictional dimension to the urban-rural divide, a source of environmental injustice that is understudied in the literature. Our study of firm location choices also complements current researches on Chinese rural pollution by highlighting the political and economic causes of pollution.

Fiscal competition and state pension reforms

AbstractFiscal competition literature emphasizes the need to consider fiscal implications of the flow of labor and capital across jurisdictional boundaries. This open‐economy consideration raises issues for the analysis of fiscal policies, ranging from taxation and expenditure policies to the structure of intergovernmental relations and interjurisdictional competition. Using data on state population movement and pension reforms (2002−2015), this study examines whether the adoption of pension reforms was motivated by state government competition for the mobile tax base. The findings suggest that interstate migration has an influence on states’ enactment of pension reform, and the effect differs by state population density.

The Import of Capital Taxes and Environmental Standards Compared To Agglomeration on Capital Flow

The effect of competition for mobile capital on local (jurisdictional) policy making is critical to the fiscal-environmental federalism literature. This existing body of literature, however, is deficient in examinations of how influential local policy levers, environmental standards and taxation, compare with fundamental capital location determinants like agglomeration forces. The purpose of this investigation is to broaden the agglomeration augmented interjurisdictional competition model to effectively compare local policy and agglomeration influences on capital flow. When jurisdictions do not have access to forms of taxation that allow for the efficiency of public goods provision, agglomeration forces notably impact fiscal policy weight. Herein, the magnitude of agglomeration directly effects the determination of the capital tax rate which in turn influences the provision of public goods. Subsequent inefficient public goods provision will distort the local choice of environmental standards. The capital tax must be complimented by 'benefit' taxation to finance efficient public expenditure. Interestingly, when public goods are provided efficiently, the capital tax doubles as a Pigovian remedy and a subsidy instrument depending, largely, on the strength of agglomeration forces.

Decentralized Environmental Regulation with Agglomeration Forces

Abstract Convention, in the setting of interjurisdictional economic competition, envisions a race-to-the-bottom when decentralized jurisdictions, in their eagerness to attract commerce, introduce policies to reduce business costs in the form of tax structures that under-provide local public goods and lax pollution standards that lower environmental quality. The current body of empirical evidence, however, does not provide compelling support for the race within the context of environmental federalism. The theoretical work presented herein debits the inventory of literature questioning the race-to-the-bottom claim by introducing agglomeration forces into the standard model. When agglomeration influences are weak to moderate, the race is still on. Conversely, when agglomeration forces are strong, fiscal competition influences are mitigated therefore providing jurisdiction's incentives to strengthen local environmental standards. JEL classification numbers: H73, R12, R30. Keywords: Environmental federalism, Interjurisdictional competition, External economies of scale.

Delaware’s copycat: Can delaware corporate law be emulated?

Abstract Delaware’s famous corporate law and its highly respected specialized Court of Chancery attract entrepreneurs from all over the world, who choose the small state as their locus of incorporation and litigation forum, and global investors who choose Delaware law as the law governing their corporate investments and mergers and acquisitions (M&A). Other jurisdictions vie with Delaware in regard to these choices. This interjurisdictional competition makes Delaware a significant global norm exporter in the field of corporate law because jurisdictions emulate some of its corporate law. Israel leads the global pack. For two decades, it has been approximating its corporate law to Delaware’s and emulating its principal institutions, including by establishing a specialized Chancery-like court whose judges seek guidance in Delaware’s case law in deciding open corporate law questions. This Article employs qualitative methods—interviews with M&A practitioners from the United States, the United Kingdom, and Israel. We use the interviews to assess whether the project of approximating Delaware corporate law has succeeded in shifting incorporation decision preferences away from Delaware to Israel and watering down the natural reluctance of global investors to accepting an unfamiliar corporate law when engaging in cross-border corporate M&A transactions involving an Israeli party. Our findings indicate that the approximation project has countervailing effects, opinions about its success being polarized and nuanced; that approximation increases the familiarity of domestic practitioners with the foreign law being emulated, making the emulated law easier to implement; and that approximation creates more room for other aspects of interjurisdictional competition to influence private choices.

Efficient Decentralized Environmental Standards from a Model of Strategic Interjurisdictional Competition

The purpose of this paper is to develop a strategic model of interjurisdictional competition where regions choose taxes on two types of capital (locally and absentee owned) and set a level of local environmental quality. Regional strategic interactions are introduced to reinforce the differential returns to and tax treatment of capital types. Moreover, the choice of the level of environmental quality by a jurisdiction is allowed to effect the returns to mobile capital types. The joint determination and fiscal interaction of these three policy variables leads to efficiency in the devolved game. Taxation of mobile capital will not distort the choice of environmental standards when public goods are provided efficiently. Efficiency in public goods provision is enhanced by capital tax exporting.

Fighting COVID-19 in the United States with Federalism and Other Constitutional and Statutory Authority

The COVID-19 pandemic challenges a workable American federalism. The Tenth Amendment to the U.S. Constitution reserves plenary responsibilities to states for promoting health and well-being; but states and their local governments suffer from a significant lack of resources and interjurisdictional competition during major emergencies. In this article, I argue that a president has significant constitutional and statutory authority for pandemic preparedness and, by law, is responsible for leading a coordinated national response necessary to a pandemic. The article outlines the constitutional and statutory authorities available to President Trump and assesses how he used those powers to address the pandemic. It is argued that early, decisive national coordinative systems for containing and mitigating the virus; testing, tracing, contacting, and isolation protocols; data collection standardization; procurement and distribution of supplies; and planning vaccine eligibility and distribution could have reduced the state and local government disadvantages early in the pandemic, saving lives and boosting the economy.

Interjurisdictional Competition and Policy Preferences of the Public

The federal structure of the US government provides states and localities with significant autonomy in many policy domains. Prior research provides evidence that jurisdictions compete with one anot...

Polycentricity and the role of government-led development: Employment decentralization and concentration in the Seoul metropolitan area, 2000–2015

This study explored whether and how government-led developments influence the formation of employment centers and polycentrification by examining the Seoul metropolitan area (SMA). Using 2000–2015 employment data at the census block level, we longitudinally analyzed the changing forms and functions of employment centers in the SMA and examined whether employment (sub)centers influenced employment distribution. We found that state and local government-led development and planning played a crucial role in this transformation and, as a result, that the SMA has been transformed into a polycentric urban structure. We suggest that strong inter-jurisdictional competition and the interplay between market forces and government-led development can be considered the key to understand the formation and growth of employment centers in the SMA. These results contribute new empirical evidence to the debate on the relationship between polycentricity and government-led development and provide policy implications for creating a polycentric spatial structure.

Horizontal interactions in local personal income taxes

Theories of inter-jurisdictional tax and yardstick competition assume that the tax decisions of one jurisdiction will influence the tax decisions of other jurisdictions. This paper empirically addresses the issue of horizontal dependence in local personal income tax rates across jurisdictions. Based on a large data set covering Swedish municipalities over a period of 14 years, we test for interactions across municipalities that share a common border, across municipalities within a distance of 100 km of each other, and across municipalities with similar political representation in the local council. We also test the hypothesis that the tax rate of relatively larger municipalities has a greater influence on their neighbors' tax rate compared to the influence of their smaller neighbors. Our results suggest that when lagged tax rates are controlled for, the horizontal correlation across municipalities that share a common border or are within a distance of 100 km from each other becomes insignificant. This result is of importance as it suggests that lagged tax rates should be included or at least tested for when testing for horizontal interactions or mimicking in local tax rates. However, our results support the hypothesis of horizontal interactions across municipalities that share a common border when the influence of neighboring municipalities is also weighted by their relative population size, i.e. relatively larger neighbors tend to have a greater impact on their neighbor's tax rates than their relatively smaller neighbors. This is of importance as it suggests that distance or proximity matters, although only in combination with the relative population size. We also find some evidence of horizontal dependence across municipalities with similar political preferences.

Corporate Purpose and the Separation of Powers

Despite its intense focus on inter-jurisdictional competition, corporate law scholarship has thus far overlooked the influence of inter-branch competition on business organizations. This Article shows how inter-branch struggles for control over corporations catalyzed the advent of modern corporate law and helped propel Delaware to its dominant position in the market for corporate charters. For centuries, the legislature, judiciary, and executive vied for the decisive role in dictating the means and ends of corporations. Through the nineteenth century, competition among the branches produced a dysfunctional and volatile relationship between government and private enterprise, with each branch successively assuming a leading role in corporate oversight, only to falter under the weight of its unique structural limitations. The resulting instability ultimately proved so intolerable as to prompt the creation of an entirely new paradigm of liberalized corporate codes at the dawn of the twentieth century. Delaware’s innovation of and rigorous adherence to corporate law’s newfound separation of powers gave it a crucial, yet previously unappreciated, edge in the competition for corporate charters. Moreover, modern corporate law’s system of checks and balances curbed longstanding abuses and ushered in an equilibrium among the branches that has served as a foundation for economic growth in the United States since. Beyond illuminating a novel factor in Delaware’s ascendency, corporate law’s separation of powers poses unappreciated problems and provides preliminary solutions for the ongoing debate over corporate purpose. A growing chorus of progressive academics and policy-makers has called on the government to impose and enforce corporations’ social obligations. This Article offers new grounds for skepticism towards these proposed reforms, because they would jeopardize corporate law’s hard-fought equilibrium among the branches by reviving the unilateralism and dysfunction that once plagued the United States’ corporate law regime. Accordingly, this Article contends that vesting the government with a proactive role in imposing and enforcing corporate purpose, whether at the state or federal level, is ill advised. Yet this Article also providers reform-minded progressives with a concrete framework for structuring an expanded power to enforce corporate purpose with minimal risk to corporate law’s separation of powers.

Perceptions of interjurisdictional competition and cooperation: A gender comparison of administrators in economic development

ABSTRACT The desire to grow a tax base often compels local governments to compete and cooperate simultaneously with nearby jurisdictions. Managing interjurisdictional relations is an important role of administrative officers. While scholars have expressed concern about the dominance of masculine imagery and the underrepresentation of women in public administration, gender’s role in interjurisdictional relations has received little attention. This study compared perceptions of interjurisdictional competition and cooperation among US. city and county administrators. The main results suggest that men and women have similar perceptions of competition and cooperation. Moreover, perceptions of whether competition comes from nearby or distant jurisdictions also does not appear to vary by gender. Rather than being influenced by individual identities, perceptions varied based on institutional characteristics, such as the extent of local responsibility over economic development planning, the number of organizations that participate in the planning process, and fiscal decentralization.

How to Regulate Blockchain's Real-Life Applications: Lessons from the California Blockchain Working Group

How should legislators write a law regulating a brand-new technology, one that they may not yet fully understand? With the advent of blockchain and other advanced computational technologies, this generation of legislators faces more complex questions than their predecessors. Drawing on the author’s experience as a member of California’s Blockchain Working Group, this article offers guidance to lawmakers, lawyers, and industry leaders seeking to draft effective laws regulating applications of this new technology. The article focuses on regulation of financial assets created by or facilitated by blockchains, including cryptocurrencies and other types of digital assets. Part II explains why blockchain and crypto-related laws are necessary, but are also more difficult to draft and pass than laws regulating less technical industries. Part III recommends five factors state and federal legislators should consider as they embark on drafting or amending blockchain-related laws, including policy decisions, ethical considerations, transparency, inter-jurisdictional competition, and uniformity. Part IV considers whether these factors exist in current legislative efforts by evaluating the existing federal statutory and regulatory structure. This section uses the Cryptocurrency Act of 2020, a federal bill proposed in early 2020, as a case study in legislative failure. Part V turns the lens to state legislative efforts, analyzing methods used by three states who were among the first to regulate blockchain technology in the United States: California (the “tortoise” approach), Wyoming (the “hare” approach), and New York (the “boomerang”) approach. The result is a novel article that will do two things for its readers: (1) encourage them to be informed participants in conversations relating to federal and state regulation of blockchain applications, and (2) offer a snapshot of these regulatory processes early in the development of blockchain technology, which will prove to be useful in coming years. Blockchain technology will continue developing quickly, regardless of how governments frame regulation. Everyone—including industry players, members of the public, and governments themselves—will gain if lawmakers can strike the right balance between innovation and public protection.

Manejo federal de la zona costera Argentina

The Argentine Coastal Zone is a fluvio-maritime continuum of great climatic and biogeographic diversity that extends from the northern end of the Río de la Plata basin to the southern extreme of the Patagonian coast. This paper analyzes the changes related to coastal management in the period 2009-2019 in public policies, regulations, competencies, responsibilities, institutions, instruments, training, capacity building, financial resources, scientific knowledge, environmental information and education, and citizen participation. Among the most significant advances are the determination of the limits of the continental shelf, the more precise regulation in the reformed Civil and Commercial Code, the formulation of a Federal Coastal Management Strategy and several sectoral strategies, the creation of the first marine protected area, the increase of the postgraduate courses related to coastal management, and the expansion of the environmental contents to all levels of the education system. On the other hand, it is worth noting the scarcity of financial resources for institutional strengthening, the low incidence of citizen participation and the persistence of interjurisdictional competition conflicts. It is concluded that the sectoral model of coastal management has consolidated, with a tendency to migrate from a centralized management at the national level to a federal system with greater decision capacity for the provinces.

Dictatorship, Democracy, and Exit

The argument for democracy over dictatorship is often made on second-best grounds. Given the possibility of self-interested leaders, opportunities for predation are decreased by distributing political authority among a number of individuals. This second-best argument loses cogency under conditions of strong interjurisdictional competition for mobile residents, however, since benevolence effectively becomes endogenous to the competitive environment. I here present a simple formal model which considers the degree of predation under dictatorship and democracy given varying exit costs. A self-interested dictator will maximize profit, but in increasing the tax rate also needs to consider the effect of taxation on productivity. As citizen exit becomes less costly, the marginal effect of tax rates on tax revenues increases and the dictator is forced to reduce extraction. Democratic institutions make extraction more costly, but also spread extractive power more widely and weaken then incentive to reduce extraction in response to competitive pressure. With sufficient competition, an endogenously benevolent dictator will extract less than the aggregate of democratic factions. This analysis sheds light on the economic success of authoritarian countries such as Singapore and has important implication for emerging models of subnational governance such as charter cities and special economic zones.