Local Public Goods Research Articles

Factions, Local Accountability, and Long-Term Development: Theory and Evidence

We develop a theoretical model of how factional affiliation and local accountability can shape the policy choices of local officials who are concerned about political survivals, and subsequently affect the long-term local development. We provide empirical evidence in support of the theoretical predictions using county-level variations in development performance in Fujian Province in China. When the Communist armies took over Fujian Province from the Nationalist control circa 1949, communist cadres from two different army factions were assigned as county leaders. For decades the Fujian Provincial Standing Committee of the Communist Party was dominated by members from one particular faction, which we refer to as the strong faction. Counties also differed in terms of whether a local guerrilla presence had existed prior to the Communist takeover. We argue that county leaders from the strong faction were less likely to pursue policies friendly to local development because their political survival more heavily relied on their loyalty to the provincial leader than on the grassroots support from local residents. By contrast, the political survival of county leaders from the weak faction largely depended on local grassroots support, which they could best secure if they focused on local development. In addition, a guerrilla presence in a county further improved development performance either by intensifying the local accountability of the county leader, or by better facilitating the provision of local public goods beneficial to development. We find consistent and robust evidence supporting these assumptions. Being affiliated with weak factions and having local accountability are both associated with sizable long-term benefits that are evident in terms of a county’s growth and level of private-sector development, its citizens’ education levels, and their survival rates during the Great Chinese Famine. We also find that being affiliated with the strong faction and adopting pro-local policies are associated with higher likelihood of a local leader’s political survival.

Information and targeted spending

We present an electoral theory on the public provision of local public goods to an imperfectly informed electorate. We show that electoral incentives lead to greater spending if the electorate is not well informed. A more informed electorate induces candidates to target funds only to specific constituencies, which can reduce aggregate welfare.

최적조세 모형을 이용한 지역 간 이주 유인 분석

최적조세 모형을 이용한 지역 간 이주 유인 분석

The Countervailing Effects of Competition on Public Goods Provision: When Bargaining Inefficiencies Lead to Bad Outcomes

Political competition is widely recognized as a mediator of public goods provision through its salutary effect on incumbents’ electoral incentives. We argue that political competition additionally mediates public goods provision by reducing the efficiency of legislative bargaining. These countervailing forces may produce a net negative effect in places with weak parties and low transparency—typical of many young democracies. We provide evidence of a robust negative relationship between political competition and local public goods using panel data from Mali. Tests of mechanisms corroborate our interpretation of this relationship as evidence of legislative bargaining inefficiencies. To explore the generalizability of these findings, we analyze cross-country panel data and show that political competition leads to better (worse) public goods provision under high (low) levels of party system institutionalization. The paper sheds light on why political competition is only selectively beneficial, and underscores the importance of considering both the electoral and legislative arenas.

Sources of Revenue and Government Performance: Evidence from Colombia

I study whether governments financed through taxes are better governed than those relying on non-tax revenue. Focusing on Colombian municipalities, I leverage variation in property tax revenue and natural resource royalties arising from cadastral updates and fluctuations in the world price of oil. Additional tax revenue has a larger effect than a same-sized increase to oil royalties on local public goods in the areas of education, health and water, despite earmarking of royalties for this purpose. Higher tax revenue also reduces the probability of a disciplinary prosecution against the municipal mayor, while the opposite is true for royalties.

Economies of scale and governance of library systems: evidence from West Virginia

Public libraries are a billion dollar industry in the United States. We explore the institutional determinants of public library technical efficiency using data from West Virginia. We first document considerable cross-district variation in library efficiency. While the average library district in our sample is between 81 and 90% efficient depending upon the year and measure, there are many district-years that are under 50%. We then explain our technical efficiency measures as a function of institutional variables reflecting the type of district and sources of funding. We find consistent evidence that urban libraries are more inefficient, perhaps because they are too small to achieve sufficient economies-of-scale in production of library services. In addition, we find revenue from local sources is associated with reduced efficiency, contrary to what would be predicted by local public goods producer theory.

Informal taxation in Sierra Leone: Magnitudes, perceptions and implications

In low-income countries, citizens often pay ‘taxes’ that differ substantially from what is required by statute. These non-statutory taxes are central to financing both local public goods and maintaining informal governance institutions. This study captures the incidence of informal taxation and taxpayer perspectives onthese payments. It is based on a taxpayer survey, in-depth interviews with government and chiefdom officials, and focus group discussions with community stakeholders across three districts of Sierra Leone. We find, first, that informal taxes are a prevalent reality within areas of weak formal statehoodin Sierra Leone, with households paying an equal number of informal and formal taxes. Second, we find positive taxpayer perceptions of the fairness of informal taxes relative to formal taxes, despite informal taxes beingregressive in theirdistribution. We explain this by the fact that taxpayers are more likely to trust the actor levying these payments, and are more likely to believe that they will be used to deliver benefits to the community.

Cooperation among Local Governments to Deliver Public Services

Cooperation among local governments has been encouraged to enable the aggregation of resources and improved public sector efficiency. The objective of this article is to contribute to the emerging literature on the factors driving intermunicipal cooperation. Using a unique panel dataset of 36,000 French municipalities for 1995‐2002, we estimate the relationship between cooperation decision and the fiscal revenues raised to provide local public goods. We find that the cooperation choice of neighboring municipalities is extremely relevant for the cooperation decision. A municipality will be more inclined to join an existing community if its neighbors have already joined an intermunicipal jurisdiction. We also find evidence that, ceteris paribus, a positive difference between the expected fiscal revenues of a cooperating locality and the actual revenues realized by an isolated locality is required to set up the agreement.

Can Fiscal Transfers Increase Local Revenue Collection? Evidence from the Philippines

The power to tax is critical to economic development. In developing countries, 40-60% of potential revenues go uncollected, and local funding for public goods is limited. Federal governments often provide substantial transfer money to increase spending on local public goods. However, standard theory predicts localities will primarily use this money to decrease, or crowd out, local tax collection. I present new causal evidence that, contrary to standard theory, transfers increase or crowd in local revenue by $0.35-$0.39 per additional federal dollar. I show this result is largely driven by increased local tax enforcement and/or compliance.

Spatial spillover effect of delivery forms on cost of public services in small and medium-sized Spanish municipalities

The aim of this study is to determine whether the selection of a given form of local public service delivery produces a spatial spillover effect on the cost of providing the same service in a neighbouring municipality. To do so, we combine a series of theoretical arguments, regarding intermunicipal cooperation, privatisation, delivery forms, the mimetic isomorphism of new institutionalist theory and the spillover of local public goods, and thereby develop the new theoretical concept of Spatial Spillover of Delivery Forms (SSDF). An empirical study of this concept was conducted, using a spatial data panel for the waste collection services provided in small and medium-sized municipalities in Spain during the period 2002–2010. The results obtained confirm the existence of SSDF via public intermunicipal cooperation when the municipalities in question share a common geographical space, within a radius of 120 km. This influence produces cost savings in the neighbouring municipalities, whereas individual forms of public provision may provoke an increase in the respective costs.

Does heterogeneity spoil the basket? The role of productivity and feedback information on public good provision

In a circular neighborhood of eight, each member contributes repeatedly to two local public goods, one with the left and one with the right neighbor. All eight two-person games provide only local feedback information and are structurally independent in spite of their overlapping player sets. Heterogeneity is induced intra-personally by asymmetric productivity in left and right games and inter-personally by two randomly selected group members who are less privileged (LP) by being either less productive or excluded from end-of-period feedback information about their payoffs and neighbors’ contributions. Although both LP-types let the neighborhood as a whole evolve less cooperatively, their spillover dynamics differ. While less productive LPs initiate “spoiling the basket” via their low contributions, LPs with no-end-of-round information are exploited by their neighbors. Furthermore, LP-positioning, closest versus most distant, affects how the neighborhood evolves.

INFORMAL INSTITUTIONS AND LOCAL PUBLIC INVESTMENTS IN RURAL CHINA

In this paper, we empirically investigate the impact of informal institutions on local public investment in rural China. We find that lineage groups have a significant effect on local public investment (per capita investment in irrigation, schools, roads, etc.): One clan is good for local public goods investment, while two or more clans in a village have a negative effect. The effect is increasing with the coverage of the largest clan. The evidence on religious groups is mixed.

Fairness Concerns on Networks

We develop a model of social preferences for network games and study its predictions in a local public goods game with multiple equilibria. The key feature of our model is that players’ social preferences are heterogeneous. This gives room for disagreement between players about the “right” payoff ordering. When preferences are compatible, however, players succeed in coordinating on a refined set of equilibria. How easily the requirements for preference compatibility are met crucially depends on a property of the network structure: neighborhood nestedness. This means that equilibrium selection succeeds in small, tightly connected structures but also in very centralized networks. It fails, in contrast, in loosely connected local interaction structures. We experimentally validate our predictions and confirm the mechanisms on which our theory builds.

Local Leadership and Public Good: Evidence from The National Rural Employment Guarantee Scheme in India

The National Rural Employment Guarantee Scheme is unique in combining self-selection of beneficiaries through demand for work and decentralization of administrative power at the local level. However it falls into a pitfall associated with the decentralization mechanism: that of capture of funds by local leaders. Using nationally representative data I find how households which are closer to local leaders do much better in the NREG scheme during the different stages of its implementation as compared to households who are not. They have more job cards, they tend to work, among those working work more days and get faster wage payments. I argue how this is a result of favouritism by these local leaders leading to capture of funds.

The perils of democracy

In this work we examine a common social dilemma in experimental economics, the public goods game, to determine how voting impacts pro-social behavior. As noted in Markussen et al. (2014), a democratic dividend exists. Couching the public goods game in a phenomenon that is playing out in much of the world – drastic income inequality – we examine the decision of groups to share local public goods with groups that have, effectively, no endowment to contribute toward public nor private consumption. Our results show the perils of democracy in that subjects in the position to vote use their advantageous situation to reward the ingroups at the expense of the less endowed outgroup members.

Optimal Public Investment in Economic Centers and the Periphery

We analyze productivity enhancing public expenditure in a spatial economic model with labor mobility, firm-specific increasing returns to scale, and transport costs. Building on Krugman (1991), Fujita, Krugman and Venables (1999) and Redding (2016), we compare optimal investment and tax policies of fiscally autonomous regions to those of a benevolent central planer. We find transport costs and the size of scale effects to influence optimal tax and spending rates under both regimes. For sufficiently low transport costs and low substitutability between manufactured goods, regional fiscal autonomy leads to underinvestment: The lower the transport costs, the lower the local investment, and the higher the potential welfare gain through centralized policies. Our results challenge the view that local public goods should be financed entirely by local governments. They also help explain the recent decline of public investment at the municipal level in fiscally decentralized countries like Germany.

How Do Policies and Actors’ Attitudes, Interests and Interactions Influence Farmland Conversion Outcomes in Land-Use Planning?

Conversion of farmland to built-up land threatens future supply of food and other ecosystem services. However, little research covers how different goods provided by farmland are taken into consideration in planning processes or how different actors influence land-use outcomes. This paper explores this by undertaking a comparative case study in two Norwegian municipalities. One of the main findings is that the national policies’ emphasis on food security is not decisive for local farmland preservation decisions. The land-use plan of the municipality which has the strictest farmland conversion policy is guided by other local values, such as the farmland’s provision of place identity and local food. In both municipalities, informal support networks of developers, other landowners, business interests, and politicians are established. Farmland preservation interests were less visible locally, and politicians found conversion proposals difficult to resist. The municipality which had converted most farmland was in favor of opening more land for development than needed. Then, the possibility space for development interest groups to influence land-use outcome increased. Findings indicate that farmland preservation policies require more emphasis on local public goods and inclusion of farmland preservation interests within the community. Further, farmland preservation strategies could benefit from linking agricultural policies and land-use planning, as well as more restrictive land-use planning.

Taxing the multinational enterprise: On the forced redesign of global value chains and other inefficiencies

The taxation of the multinational enterprise (MNE) has been a continuing concern for policymakers. We argue that the changing nature of the mobile MNE (e.g., its improved ability to fine-slice the value chain and disperse it geographically) makes it increasingly important to rethink current tax policies. First, there should be more focus on the inefficiencies that arise when taxation leads to the inefficient location of MNE activities. Thus, MNEs may shift activities to low-tax jurisdictions that offer lucrative pecuniary and non-pecuniary incentives, but do not enable their investments to maximize their contribution to global value creation. Second, international tax regimes should ensure that MNEs pay for their consumption of local public goods, and public finance scholars have long known that the taxation-based distortions are minimized when the tax objects are immobile. However, the bulk of current tax policies are aimed at corporate profits that are both poor proxies for the consumption of local public goods as well as extremely mobile. Integrating theory from international business, public finance and economic geography, our analysis demonstrates that moving the incidence of taxation from corporate profits to dividends and consumption would unambiguously improve both wealth creation and efficiency.

Does decentralization of decisions increase the stability of large groups?

Using a laboratory experiment with nested local and global public goods, we analyze the stability of global groups when individuals have the option to separate, according to the degree of decentralization of decision-making. We show that increasing the number of decisions made at the local level within a smaller group reduces the likelihood that individuals vote in favor of a configuration that includes no global good for interacting only within their local group. Voting for such a configuration is more likely when global group members are less cooperative and local group members are more cooperative. Reinforcing local group identity has no impact on votes.

Behavioral spillovers in local public good provision: An experimental study

In a circular neighborhood, each member has a left and a right neighbor with whom(s) he interacts repeatedly. From their two separate endowment amounts individuals can contribute to each of their two structurally independent public goods, either shared only with their left, respectively right, neighbor. If most group members are discrimination averse and conditionally cooperating with their neighbors, this implies intra- as well as inter-personal spillovers which link all neighbors. Investigating individual adaptations in one’s two games with differing free-riding incentives confirms, through behavioral spillovers, that both individual contributions anchor on the local public good with the smaller free-riding incentive. Therefore asymmetry in gaining from local public goods allows to establish a higher level of voluntary cooperation.