Provision Of Local Public Goods Research Articles

It’s Not Just Welfare: Racial Inequality and the Local Provision of Public Goods in the United States

Recent research shows that inequality between racial groups is a critical determinant of redistributive policy in the United States. Using various measures of local and state spending and examining multiple levels of geographical and political jurisdictions, we extend this research to government spending on local public goods. Specifically, we examine (1) whether the extent to which income inequality falls along racial lines dampens local and state government spending on public goods, (2) which types of public goods are most affected by the racial structure of inequality, and (3) whether political variables such as local leaders’ racial identities and party affiliation mediate the relationship between racial inequality and spending on public goods. The findings reaffirm the need to consider racial diversity and inequality jointly as influences on policy.

Local Elites and Public Good Provision: Evidence From the Rise of Public Education in the Early 20th Century China

Do social elites facilitate public good provision? Public primary education in China only started after 1905, and it expanded rapidly in the following three decades. This paper studies the infancy stage of the public education system in China and focuses specifically on the role of its most important local elite group — lower degree holders under the civil service exam system. I construct a new county-level dataset linking local elites to public education provision. I find counties that had larger elite groups built significantly more public primary schools and spent higher expenditure on education. This finding is robust to various checks, including two IV approaches. Furthermore, the positive effect of local elites was larger in counties with the weaker formal ruling, proxied by both high frequent turnover of local magistrates and distance to provincial capital. These results suggest that the informal governance imposed by local elites was critically important for the provision of public goods, especially in societies where the formal ruling was weak.

Capitalization, decentralization, and intergenerational spillovers in a Tiebout economy with a durable public good

We consider an overlapping generations model with a durable local public good (DLPG). We establish a Tiebout theorem (equilibrium exists and is first best) as well as an equal treatment Second Welfare Theorem in this dynamic DLPG economy. We establish conditions, including the Small Jurisdiction assumption, under which local provision of durable public goods results in the full internalization of the intergenerational spillovers that durability entails. In contrast, when durable public goods are provided by the national government, internalization does not take place and underprovision of public goods results. This sets up an institutional trade-off between national and local provision of public goods that balances the relative strength of intergenerational and interjurisdictional spillovers. Our main conclusion is that while capitalization is an effective mechanism to cause agents to internalize intergenerational spillovers, the effectiveness of this mechanism is limited by the degree to which there are more general spillovers across jurisdictions.

Ethnic Diversity and Ethnic Discrimination: Explaining Local Public Goods Provision

Numerous studies have found that ethnic diversity is negatively associated with the provision of local public goods. However, these accounts neglect both the strong role of central institutions in the provision of many “local” public goods and the frequently positive correlation between diversity and the presence of less politically powerful ethnic groups. These factors suggest that existing diversity findings may be explained in some cases by central governments discriminating against areas inhabited by less powerful groups. This hypothesis is tested using data in village-level public goods provision in Northern India, supplemented by data on service provision in Kenyan villages and American cities. While there is evidence that the presence of socially powerful groups is positively associated with service provision, evidence for the diversity hypothesis is weak. The results suggest that failures of public services in diverse areas may reflect larger inequalities within the political system rather than local problems in cooperation.

Hybrid Regimes for Local Public Goods Provision: A Framework for Analysis

There is a growing recognition that the state is not the sole provider of “local public goods” such as water and education in the developing world. Mainstream approaches to the study of local public goods provision, however, have yet to incorporate these insights. We offer a descriptive typology of hybrid local public goods regimes, or systems in which both state and non-state actors contribute to provision. It emphasizes two dimensions: the type of state involvement (direct versus indirect provision), and the degree of formal state penetration. The politics of producing local public goods, we argue, takes on distinct forms in each cell. The framework allows scholars to develop more accurate and precise explanations of variation in service quality and access, and to choose more appropriate outcome measures. We illustrate the utility of this framework by analyzing distinct hybrid regimes for water and sanitation, and mass transit in Africa, Asia, and Latin America.

Policy choice and economic growth under factional politics: Evidence from a Chinese Province

This paper investigates how political elites make policy choices that have bearing on an authoritarian regime's economy, from the perspective of factional politics. A local leader makes policies primarily to secure his political survival, which is contingent on the support from either his higher-level patrons or his local grassroots constituents. Using a simple model, we show that a local politician with close factional ties to high-level patrons will invest more in sending loyalty signals to the latter to receive their protections, while a poorly-connected politician will make more effort to spur a broad-based economic growth that economically benefits his local constituents. Using a unique county level data on the factional politics of Zhejiang Province, China, we find that counties with weaker (closer) factional ties have lower (higher) tax burdens per capita, while spending more (less) on local public goods provision. The results are stable after various robustness tests.

Tax competition among U.S. states: Racing to the bottom or riding on a seesaw?

Dramatic declines in capital tax rates among U.S. states and European countries have been linked by many commentators to tax competition, an inevitable “race to the bottom,” and underprovision of local public goods. This paper analyzes the reaction of capital tax policy in a given U.S. state to changes in capital tax policy by other states. Our study is undertaken with a novel panel data set covering the 48 contiguous U.S. states for the period 1965 to 2006 and is guided by the theory of strategic tax competition. The latter suggests that capital tax policy is a function of “foreign” (out-of-state) tax policy, preferences for government services, and home state and foreign state economic and demographic conditions. The slope of the reaction function – the equilibrium response of home state to foreign state tax policy – is negative, contrary to casual evidence and many prior empirical studies of fiscal reaction functions. This result, which stands in contrast to most published findings, is due to two critical elements that allow for delayed responses to foreign tax changes and responses to aggregate shocks. Omitting either of these elements leads to a misspecified model and a positively sloped reaction function. Our results suggest that the secular decline in capital tax rates, at least among U.S. states, reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy. While striking given prior empirical findings, these results are fully consistent with the implications of the theoretical model developed in this paper and presented elsewhere in the literature. Rather than “racing to the bottom,” our findings suggest that states are “riding on a seesaw.” Consequently, tax competition may lead to an increase in the provision of local public goods, and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective.

There Goes the Neighborhood: Does Tipping Exist Amongst Income Groups?

The 'tipping point' model of segregation (Schelling, 1971) has rarely been tested for socioeconomic variables besides race. Using US Census data from 1970-2010, I find evidence for tipping behavior amongst income groups. This is strongest when the population is split at the 10th percentile of income. In this case, average tipping points range from 7 to 12 percent. When the proportion of people below the 10th percentile in a neighborhood exceeds said tipping point, the decrease in those above the 10th percentile will be from 5 to 14 percent. Robustness checks indicate that these effects are not misinterpreted racial tipping points, nor a result of peoples' income percentile changing over their lifetime. Effects are strongest in neighborhoods with more school-aged children, suggesting that income tipping is driven by concerns that the provision of local public goods could drop from an influx of lower class residents.

Transaction costs in the context of the requirements of effective finance management for local government units

Motivation: Transaction costs economics fits in the paradigm of the new institutional economy, in which the costs are treated as a versatile measure for the effectiveness of institutions. Transaction costs are generated in every field of human activity, because we live ‘in the world of contracts’. Characteristics of transaction costs include: common unawareness of their existence, difficulties in quantification and omission in economic calculation. This pertains especially to the public sector and the corresponding public transaction costs. In modern public finance system, costs rise at a dynamic rate, thus having a significant effect on government budget, as well as on the effectiveness of the public sector. Aim: The purpose of this paper is to identify and indicate the specificity of public transaction costs for local government sub-sector, as an integral component of public finance sector. The intent of the author is to expose the threads of local governance and public sector within the theory of transaction costs economy, as well as to prove that inclusion of those costs in economic calculations related to local finance system is the necessary condition for effective management of self-government finance. Results: The theoretical achievements of transaction costs economy focuse mainly on market transactions (market transaction costs) and managerial relations (managerial transaction costs), usually marginalizing the thread of public transaction costs occurring in the field of the institutional environment related to the process of making public choices/political decisions and providing of public goods. The highest transaction costs of self-government sub-sector are associated with two levels of its activity. First, contracts concluded at the public entity — public entity level, and second, contracts concluded at the public entity — private entities level. In the first case, it is about transaction costs related to the structure of public institutions, generated as an effect of fiscal relations among individual levels of public authority (transaction costs of intergovernmental relations). The second case is associated with the progressing marketization of relations within the public sector, and the transaction costs associated with the process pertain among others to: the method of provision of local public goods (including consolidation of the entities rendering those services), tender procedures, the public-private partnership, privatization processes of municipal companies, municipal outsourcing, etc.

Segregation, Ethnic Favoritism, and the Strategic Targeting of Local Public Goods

This article demonstrates that ethnic segregation is a key determinant of local public goods provision. We argue that this results from politicians’ strategic engagement in ethnic favoritism: Only when ethnic groups are sufficiently segregated can elites efficiently target coethnics with local public goods. We test this expectation with fine-grained data from Malawi on the spatial distribution of ethnic groups, geolocated distributive goods (water wells), and the ethnic identities of political elites. We find that members of parliament provide more local public goods to their electoral districts when ethnic groups are geographically segregated but that this increased investment is primarily targeted toward coethnics. Thus, while segregation promotes overall public goods provision, it also leads to greater favoritism in the distribution of these goods. Our logic and evidence provide an elite-driven explanation for both the considerable variation in ethnic favoritism across contexts and the underprovision of public goods in ethnically diverse settings.

Fiscal Decentralization in Times of Financial Crises

AbstractThe virtues of fiscal decentralisation are usually assessed against the provision of local publicgoods, little is said about its impact on public finances. There is, however, a growing concern thatcentral governments losing control over part of the budget could negatively affect public finances,especially in times of adverse financial conditions. The present work shows that these concerns aremisplaced. The empirical investigation on 19 OECD countries, over the period 1980-2010, shows thatexpenditure decentralisation improves the central budget balance without prejudice for local budgets,thus improving the overall country’s fiscal position. This effect is reinforced when combined with taxautonomy. During periods of financial crises, the disciplinary role of fiscal decentralisation appears tobe even stronger, raising concerns about the recentralisation trend recently pursued by some advancedeconomies precisely to face fiscal distress and economic stagnation.JEL Classification: fiscal decentralisation; government budget balance; banking crisisKey words: G01, H6, H7

Mineral taxes and the local public goods provision in mining communities

Fiscal regimes to the mining industry facilitate the revenue-raising task of resource-dependent economies as they reduce the local tax burden of their residents. Whether these fiscal arrangements translate into a higher allocation of public goods in these economies remains yet unclear. We analyze the effects that local mineral taxation has on the provision of public goods in mining communities using Chile as a case study. We examine the effects of a non-distortionary tax on local concessions using a panel of 345 local governments between 2009 and 2014. To identify the effect, we compare the benefits of the tax on mining localities using two counterfactual groups of non-mining localities. We control for time-invariant and time-variant unobservable factors through both a fixed-effects and an instrumental variable fixed-effects estimator. Results show that the mineral tax increases the provision of only two out of four indicators of public goods. Further evidence suggests that local mineral taxation crowds out other local taxes.

Tax Reform, Fiscal Decentralisation and Local Public Goods Provision in China

Using a provincial panel data set taking advantage of the time variations brought about by the 1994 fiscal reform, this study provides empirical evidence to the hypothesis that the level of public service improves when local governments enjoy a certain degree of fiscal autonomy. China is the ideal region for this identification strategy since it has experienced various changes in the central–local fiscal relationships during its economic transition. Besides the ordinary least squares estimation, the instrumental variables approach is also applied to address the problems of measurement error in fiscal decentralisation indexes. This research lends empirical support to the literature, which argues that decentralisation improves the delivery of public services.

The provision of local public goods in water supply

The provision of local public goods in water supply

Industrial distribution effect on the local public goods

This paper analyzes the effect of industrial location on the provision of local public goods in two regions. Initially, two regions are asymmetric because industrial firm agglomerates in one region and the other region do not provide a local public good. When industrial firms disperse across regions, the local government that does not provide it gets the larger revenue. In this case, this paper analyzes whether the local government provides it or not. The results depend on the population through the land rent. Only when the population belongs to some range, through industrial dispersion, does the local government change the behavior toward the local public good. In this case, the industrial distribution will make the local decentralization is desirable for efficiency without the central government's intervention.

Internalization of externalities and local government consolidation: empirical evidence from Japan

The fact that jurisdictional consolidation overcomes externality problems in the provision of local public goods is one of the best-known benefits of consolidation in the theoretical literature. Nevertheless, previous studies provide little evidence of how public service spillover effects influence consolidation decisions. This study empirically tests the hypothesis that spillovers induce consolidation, using voting data on the consolidation of Japanese municipalities. The extent of spillovers is measured by estimating the demand function for public goods with externalities. It is found that residents of the municipalities that can internalize a large amount of public goods spillovers through municipal consolidation tend to favor consolidation. This result supports the theoretical inference that spillovers in local public goods affect utility gains from jurisdiction integration, thus serving as one of the key impetuses for boundary reform. Moreover, after controlling for the spillover effects, economies of scale, population share, differences in median income, and unconditional grants can help explain consolidation preference.

The Local Political Economy Effects of School Construction in Indonesia

A by-product of the extension of mass education is the increase in the level of education of those eligible for political offices. This can have a profound impact on the effectiveness of local governments. In this paper, I examine the effects of a large school construction program in Indonesia on local governance and public good provision. The results show that the program led to important increases in the provision of public goods. Furthermore, I provide evidence consistent with the hypothesis that the increase in the education of the village heads was one of the main mechanisms behind these results. (JEL D72, H41, H75, I21, O15, O17)

A theoretical framework of the governance institutions of low-income housing in China

This paper develops a theoretical framework for institutional analysis of the governance of low-income housing in the city. I focus on the provision of local public goods as a central issue for low-income housing. Factors that affect the governance structure from the efficiency perspective and the equity perspective, respectively, are explored. I argue that over-subsidisation is an important problem for income-redistribution institutions and, hence, public housing or social housing becomes an important form of governmental intervention in low-income housing. The framework is then applied to low-income housing in China. In particular, I analyse the governance structures of several major types of low-income housing including public rental housing, private low-income housing, work-unit compound and urban village.

Public Policy and the Private Provision of Public Goods under Heterogeneous Preferences

We compare the relative efficiency of second-best policies designed to promote the private provision of public goods. We use the provision of local public goods as our central example and discuss settings in which the model extends to choices over energy-consuming durables. We introduce preference heterogeneity by allowing a subset of agents to value the public good more than others, reflecting a form of prosocial preference. We further assume that agents face convex costs of provision, an assumption that accords well with individually provided public goods such as neighborhood amenities. We show that minimum standards are often more efficient than uniform price-based incentives in this setting. Extending our model to allow for both benefit and cost heterogeneity, we show how policy choice depends on the strength and correlation between the two forms of heterogeneity.

Do city–county mergers in China promote local economic development?

AbstractMunicipal mergers have become a worldwide phenomenon in the past few decades, primarily advanced to exploit economies of scale. While most evaluations of municipal mergers have focused on the efficiency of local public goods provision, it is rare in the literature to explore how such mergers promote economic growth in a developing country context. This research investigates the economic consequences of a policy experiment of city–county mergers (che xian she qu) in China during the period 2000–2004. Using comprehensive datasets at city, county and firm levels, we present evidence that the merger significantly increases local economic development, and the magnitude of the effect depends on local endowments related to agglomeration forces. The results are robust to a number of different model specifications. We further verify that improved transport infrastructure and urban agglomeration economies after merger are potential contributors to the positive merger effects.