Economic literature that seeks to explain the expenditure decisions of local governments is quite extensive. As reviewed by Deacon (1977) and Hirsch (1970), studies have been single equation approaches of three main types: expenditure determinants, demand studies, and cost studies. Expenditure determinant studies have identified important explanatory variables such as income, density, political fragmentation, and other variables relating to community tastes (see, for example, Weicher 1970). Cost studies have focused on the scale question or other aspects of production. Demand studies have emphasized the role of choice in explaining expenditure. As Bahl, et al. (1980) have pointed out, use of single equation approaches has led to contradictory results concerning existence of economies of scale and the size of income and price elasticities. In this paper, we make explicit the simultaneity of public service quality and tax decisions. A simultaneous model of local government expenditure decisions is given in which taxes, quality of service, and total budget are simultaneously determined from supply conditions, demand factors, and revenue constraints. This specification allows us to estimate simultaneously scale and demand parameters and their effects on expenditure. The model developed here includes factors identified in previous research as being relevant: inclusion of quality aspects in the definition of output (Hirsch 1970), specification of supply conditions or production parameters