Local Public Goods Research Articles

Local government cooperation at work: a control function approach

We analyse voluntary coalition formation using a unique panel data for 1056 municipalities in the French region of Brittany between 1995 and 2002. We use a control function approach to develop a binary discrete choice model with spatial interactions. We find that a municipality’s decision to cooperate over the provision of local public goods depends on the decisions made by its neighbours. In particular, the probability of cooperating with neighbouring municipalities is higher if the latter already provide joint local public goods. This suggests that functional cooperation is likely to emerge due to a mimicking motivation and is poorly motivated by political alignment. The results are in line with the recent applied spatial economics literature but are derived for a discrete choice model setting.

Devolution and grant-in-aid design for the provision of impure public goods.

Traditional fiscal federalism theory postulates that devolution for the provision of local public goods increases welfare. However, most of the services offered at local level are local impure public goods whose characteristics may prevent devolution from being efficient. Our paper shows that devolution is the optimal choice only for local impure public goods. For an environment characterised by coordination and asymmetry of information problems, we propose the optimal grants-in-aid formula that Central Government should use to reduce welfare losses and we compare it with what suggested by the mainstream literature. Finally, we show under which conditions devolution should be preferred to a centralised solution. From a policy point of view, our paper may explain the heterogeneity in the choices made by countries in terms of devolution in the provision of merit and impure public goods.

More for everyone: The effect of local interests on spending on infrastructure

A central question in political economy is whether decision-making in representative democracies is biased towards local public investments or other types of policies which have locally concentrated benefits. The model by Weingast et al. (1981) predicts that a legislature with members from different areas will spend more in total on local public goods when the geographic constituency of each member is small. I test this prediction using panel data on the 18 Norwegian regional councils, exploiting that the geographic allocation of regional council seats varies considerably over time. Consistent with the theory, I find robust evidence that investments in regional public roads are lower when many council members come from the more populated areas in the region. This gives a more direct test of the prediction by Weingast et al. (1981) than existing empirical evidence, which concerns the relationship between public spending and legislature size. I find similar but less robust results for the maintenance of existing roads.

The effects of gender, group composition and social trust on the volunteer behaviour of Lions Clubs International members

Volunteering is important to study cross-nationally, as it is linked to the provision of local public goods. This article explores factors associated with volunteering across 14 countries, focusing on the effects of gender, group composition and social trust on the volunteer behaviour of members of a large, international service club. We draw on a unique dataset: a survey of Lions Clubs International members. Results indicate a significant relationship between the proportion of a club’s female membership and the volunteering of its members, particularly in high-income countries. Among both middle- and low-income countries, the individual factors of gender and social trust are found to be significant for volunteering among club members. Levels of national trust are important to consider when examining volunteering from a cross-national perspective.

Demanda por gastos públicos locais: evidências dos efeitos de ilusão fiscal no Brasil

Resumo Além da complexidade e opacidade da tributação, a forte dependência dos municípios brasileiros de transferências federais e estaduais aumenta a chance de ilusão fiscal. Sob o efeito de ilusão fiscal, os contribuintes tendem a subestimar os custos dos bens e serviços providos pelo governo e, portanto, a demandá-los em quantidade maior do que o fariam na ausência de ilusão. O objetivo deste trabalho é estimar os efeitos da ilusão fiscal sobre a demanda por gasto público municipal no Brasil. Com base no modelo do eleitor mediano e usando dados referentes ao ano de 2010 para 5249 municípios, estima-se uma função demanda por bens e serviços públicos locais que inclui variáveis que captam ilusão fiscal. Os resultados evidenciam que ilusão fiscal associada à estrutura tributária e às transferências fiscais pode contribuir para compreensão da expansão gasto público no Brasil.

Public debt, bailouts, and common bonds

We look at a model where countries of different sizes provide local public goods with positive spillovers. Matching grants can give rise to optimal expenditure levels, but countries can induce bailouts. We study the characteristics of these bailouts in a subgame-perfect Nash equilibrium and how these characteristics are affected by the introduction of common bonds. Partial substitution of common for sovereign bonds has two implications. First, it lowers the average and marginal borrowing costs of countries which may be eligible for bailouts. This effect leads to higher borrowing in these countries irrespective of their bailout expectations. Second, the lower borrowing costs mitigate the incentives of countries to induce a bailout and, therefore, constrain the parameter set for which a soft budget constraint equilibrium exists. As a result, the introduction of common bonds can also be in the interest of those countries that provide the bailouts.

How Proportional Representation Frames Pork Barrel Efforts: District Magnitude, Ballot Type and Position on the List Interactions

I focus on pork barrel efforts, i.e. legislators’ actions to seek local public goods for their constituencies. Efforts in closed-list and open-list proportional representation are better explained as the interaction of district magnitude (M) and list position. In closed-list systems efforts will be greater when M is very small and as M increases they will describe a concave distribution at the list level. In open list systems efforts increase the larger the M and for legislators elected in the closest positions to the top of the list. I test this argument using an original dataset of bills initiation in the Honduran Congress between 1990 and 2009. In 2004, Honduras shifted from closed-list to open-list while maintaining district magnitude constant.

Voluntary Cooperation in Local Public Goods Provision: An Experimental Study

In a circular neighborhood with each member having a left and a right neighbor, individuals choose two contribution levels, one each for the public good shared with the left, respectively right, neighbor. This allows for general free riders, who do not contribute at all, and general cooperators, who contribute to both local public goods, as well as for differentiating contributors who contribute in a discriminatory way. Although the two-person local public good games are structurally independent, we investigate whether intra- as well as inter-personal spillover effects arise. We find that participants do not behave as if they are playing two separate public good games, hence that both inter-personal and intra-personal behavioral spillovers occur. To investigate more clearly motives for voluntary cooperation via analyzing individual adaptations in playing two structurally independent games, we design treatments differing in cooperation incentives (i.e. different MPCR) and structural (a)symmetry of local public goods. We find that when the MPCR is asymmetric, free-riding occurs less, and contributions are more stable over time. We also find that contributions in the asymmetric treatment when MPCR is low are higher than contributions in symmetric treatments with higher MPCR.

Optimal Formulas for Subnational Tax Revenue Sharing

We develop an analysis of optimal formulas for subnational tax revenue sharing for two cases of interest: when local public goods (lpg’s) show spillovers and are inter-regional perfect and imperfect substitutes. Our analysis could be relevant to understand the determinants of feasible competing alternatives for the design of tax revenue sharing systems. Our study shows that: 1) Inter-regional spillovers should be taken into account in the design of formulas for subnational revenue sharing when lpg’s are perfect inter-regional substitutes but should not be taken into account to supply lpg’s that are imperfect substitutes; 2) The distribution of preferences for lpg’s and population should be considered in formulas for revenue sharing when subnational governments provide both lpg’s that are perfect and imperfect substitutes; 3) For local public goods that are imperfect substitutes, the share of tax revenue is first increasing and then decreasing with increases in the population of the district; 4) For perfect substitute-lpg’s, the share of tax revenue in the district is increasing and concave with the district’s population; 5) The distribution of income should not be considered in the design of formulas for lpg’s that are perfect and imperfect substitutes. Other empirically relevant comparative analyses are considered in the paper.

The Geography of Linguistic Diversity and the Provision of Public Goods

This paper theoretically analyzes and empirically investigates the importance of local interaction between individuals of different linguistic groups for the provision of public goods at the national level. Depending on whether local interaction mitigates or reinforces antagonism towards other groups, the micro-founded theory we develop predicts that a country's provision of public goods (i) decreases in its overall linguistic fractionalization, and (ii) either increases or decreases in how much individuals locally learn about other groups. After constructing a 5 km by 5 km geographic dataset on language use for 223 countries, we compute measures of overall fractionalization and local learning, and investigate their relation to public good provision at the country level. While overall fractionalization worsens outcomes, we find a positive causal relation between local learning and public goods. Local mixing therefore mitigates the negative impact of a country's overall linguistic fractionalization. An IV strategy shows that this result is not driven by the possible endogenous spatial distribution of language speakers within countries.

Existence of Share Equilibrium in Symmetric Local Public Good Economies

Share equilibrium was introduced in van den Nouweland and Wooders (2011) as an extension of ratio equilibrium to local public good economies. In that paper, we took an axiomatic approach to motivate share equilibrium. In the current paper we consider questions related to the existence of share equilibrium and we derive a necessary and sui¬ƒcient condition for the existence of share equilibrium in symmetric economies. Along the way, we develop a deeper understanding of the possible variation in share equilibrium by considering when symmetric players necessarily have the same share indices in equilibrium.

Trade Shocks and the Provision of Local Public Goods

Trade Shocks and the Provision of Local Public Goods

Evaluating the Quality of Local Public Goods

Evaluating the Quality of Local Public Goods

Yardstick Competition, Performance Evaluation, and the Efficient Provision of Local Public Goods

Yardstick Competition, Performance Evaluation, and the Efficient Provision of Local Public Goods

Principles of Design of the Institutional Environment of Local Public Goods

Principles of Design of the Institutional Environment of Local Public Goods

The Economic Implications of House Price Capitalization: A Synthesis

In this article, I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader economic implications of such capitalization. The main insights are: (1) house price capitalization is more pronounced in locations with strict regulatory and geographical supply constraints; (2) capitalization can induce the provision of durable local public goods and club goods; and (3) capitalization effects—which are habitually ignored by policy‐makers—have important adverse consequences for a wide range of policies such as intergovernmental aid and the mortgage interest deduction.

The political economy of pricing and capacity decisions for congestible local public goods in a federal state

This paper studies the political economy of pricing and investment for excludable and congestible public goods in a federal state. Although the model applies to many local congestible public facilities (such as libraries, museums and public swimming facilities), our main motivation is the problem of providing and pricing road infrastructure in federal states. The two-region model we develop allows for spill-overs between regions, it takes into account congestion, and it captures demand heterogeneity both between and within regions. Regional decisions are taken by majority voting; federal decisions are taken by a minimum winning coalition in a legislature of regionally elected representatives. We have the following results. First, when users form the majority in at least one region, decentralized decision making performs certainly better than centralized decision making if spill-overs are not too large. Centralized decisions may yield higher welfare than decentralization only if users have a large majority and the infrastructure in a given region is intensively used by both local and outside users. Second, if non-users form a majority in both regions, centralized decision making and decentralized decision making yield the same socially undesirable outcome, with prices that are much too high. Third, the performance of decentralized supply is strongly enhanced by local self-financing rules; this prevents potential exploitation of users within regions.

Exposing Politicianss Ties to Criminal Organizations: The Effects of Local Government Dissolutions on Electoral Outcomes in Southern Italian Municipalities

Since 1991, the Italian national government can dissolve municipal councils when infiltration by organized crime is suspected (Law 164/1991). We exploit variation over time and space in the application of this law to study voters’ responses to politicians’ publicly exposed ties to criminal organizations. Using a difference-in-differences approach, we find that public exposure of ties to organized crime significantly depresses turnout in local elections, and negatively impacts the electoral performance of incumbents and purely local political parties. The breach in the local political principal-agent relationship also translates into citizens’ reduced willingness to contribute to the financing of local public goods.

Local natural resource curse?

Utilizing an output based efficiency measure we investigate whether higher public revenues harm efficiency in the production of local public goods. Much variation in revenues among Norwegian local governments can be explained by revenues collected from hydropower production. This revenue variation, combined with good data availability, can be used to address a main concern in the resource curse literature; that public sector revenue, and in particular the revenue from natural resources, is endogenous. We obtain an exogenous measure of local revenue by instrumenting the variation in hydropower revenue, and thus total revenue, by topology, average precipitation and meters of river in steep terrain. We find support for what we term the Paradox of Plenty hypothesis—that higher local government revenue reduces the efficiency in production of public goods. We do not find support for what we term the Rentier State hypothesis—that revenue derived from natural resources should harm efficiency more than revenue derived from other sources such as taxation.

Juggling Administrative Institutions: Local State Actors and the Management of Urban Space in Kumasi, Ghana

Ghana’s local governments are arenas for autonomous policy decisions following its 1988 decentralization program. These structures evolve and regulate economic and physical development plans in their jurisdictions. To ensure local level participation, institution building within the local self-governments has been actively undertaken, and in metropolitan areas, regulatory authorities for physical development have been reformed and decentralized to sub-metropolitan district structures. Despite the institutional changes, the challenge of unauthorized physical development persists and threatens reserved spaces designated for public use, conservation, and recreational purposes. Given the complex mix of formal rules and practical norms within these structures, this paper explains how institutional reforms within the local self-governments work rather in favor of individuals’ interests; the changes allow not only local state actors but also private developers to juggle the various institutional frames and maneuver their way through to erect unauthorized structures in the Kumasi metropolis. Based on empirical data from the local state administrative structures in Kumasi, the paper shows how the interests of actors together with the multiple institutional rules shape residents’ options in their pursuit of physical projects in the urban space and, thus, enhancing the emergence of unauthorized settlement patterns in the metropolis. The paper, therefore, challenges the dominant notion on local state institutional reforms that links them to improved delivery of local public goods in the Global South because, in most cases, the change programs are severely limited by existing institutional interests and practices.