Date of Award

1998

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Geoffrey K. Turnbull

Abstract

Understanding the fiscal behavior of subnational governments is increasingly important as fiscal responsibilities are devolved. In order to get a clearer picture of subnational government behavior, we employ a median voter model and local government data to perform tests of the fragmentation, decentralization, fiscal illusion, and overlapping jurisdictions hypotheses. A key theoretical result is that estimating horizontal effects of the leviathan and fiscal illusion models without accounting for the interdependent demands for the services of overlapping jurisdictions will result in upwardly biased estimates. We find that controlling for the overlapping jurisdictions relationship is important. This dissertation estimates each model using corresponding municipalities and counties. Our data set includes the both metropolitan and nonmetropolitan local governments in the West, Midwest, and South. We find support for both the decentralization and fragmentation hypotheses in each municipal region. We find more evidence of behavior consistent with a leviathan at the county layer rather than at the municipal layer. Our main fiscal illusion finding is th e difference in the extent of the flypaper effects across municipal and county samples. Municipal samples display a flypaper effect while the flypaper effect is much less prevalent at the county layer. In all but one case, we find symmetry in the overlapping jurisdictions relationships, i. e., changes in county expenditures affect municipal expenditures in the same way that changes in municipal expenditures affect county expenditures. We find a symmetric, complementary strategic relationship in nonmetropolitan West, Metropolitan Midwest, and metropolitan Southern samples. A related line of literature posits that the specific type of organizational form that a government takes affects the level of public expenditures. Our results support the existing public finance literature that the organizational form of government has no effect on expenditures. Our analysis, however, does find differences across types of governments with respect to the leviathan, fiscal illusion, and overlapping jurisdictions variables.

ISBN

9780591905175

Pages

256

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