Urban Sprawl and the Finances of State and Local Governments

Concern over the rate of spatial growth of urban areas has become a significant national political issue and a major development issue in many urban areas. An often cited statistic, typically presented as evidence of sprawl, is that between 1960 and 1990 the urban population in the United States increased by 50 percent while the amount of developed land more than doubled (Benefield et al., 1999).While much has been written about the causes and consequences of sprawl, little attention has been paid to the implications of sprawl for the finances of state and local government. There are at least two possible channels for sprawl to affect the finances of state and local governments. First, if the causes of sprawl include market failures or government policies, there may be a role for governmental corrective action. Second, sprawl may affect the costs of and revenue sources for the public provision of goods and services. This paper considers the potential effects that sprawl might have on the finances of state and local governments and the possible policies that might be adopted to address the causes and consequences of sprawl

Do interregional transfers improve the economic performance of poor regions? The case of Spain

The 17 regional governments of Spain receive grants from both the central government and the European Union. The grants are generally redistributive and are intended to stimulate economic activity in the poorer regions. We evaluate the effectiveness of the grants by comparing the economic performance of the regions before and after the implementation of the grant programs using a differences--in-- differences approach. We find that these policies have not been effective at stimulating private investment or improving the overall economies of the poorer regions.Regional grants and economic development

Tax incentives and the city

It is difficult to justify tax incentives within the existing economics literature on tax competition. We develop a model in which communities are interested in attracting firms not only for their own capital but also for the “concentration externalities,” a form of agglomeration economies, their location bestows on existing firms. We find that it is efficient in this case for communities to offer tax incentives, defined as a tax rate below the benefit tax level, to firms. We present the recent relocation of the Boeing Corporation's headquarters from Seattle to Chicago as a case study.Tax incentives, concentration externalities, agglomeration economies, tax competition, benefit tax

Fiscal decentralization in Spain: An asymmetric transition to democracy

Asymmetric fiscal decentralization, by which we mean different fiscal arrangements between the central government and different groups of, or individual, lower-level governments, may be justified from an economic efficiency perspective. As argued by Tiebout (1956), Oates (1972) and others, a decentralized system of regional and local governments is better able to accommodate differences in tastes for public goods and services. This efficiency argument calls for decentralization of fiscal authority to regional and local governments, but not necessarily asymmetric decentralization. However, when the differences in tastes for public goods and services arise out of differences in history, culture and language across regions of a country, asymmetric treatment may be justified. History, culture and language may influence how a group of people (a region) views autonomy, independence and fiscal authority. Some regions may have had experience with autonomous government in the past, they may have a culture that is strongly reliant upon (or leery of) the central government, or they may be fearful of losing their separate languages if they do not have special arrangements. To accommodate differences in taste for independence, autonomy, and fiscal authority, it may be necessary to have different fiscal arrangements between the central government and the different regions comprising the country.Fiscal decentralization, autonomous communities, asymmetric devolution, Spanish regions, fiscal imbalance

Why do differences in the degree of fiscal decentralization endure?

A notable difference between the U.S. and many countries in Europe is in the degree of fiscal decentralization. Regional (and local) governments in the U.S. have significant autonomy in setting their own taxes and determining how to spend their revenues. This is not true of their counterparts in Spain, France, the United Kingdom, Czech Republic and many other European countries. In recent years, many countries formerly subject to dictatorships or communism have been considering decentralizing fiscal responsibility to sub-national governments as part of the process of democratization (see Bird and Ebel, forthcoming). Yet, much of Europe remains immune to adopting effective decentralization in which sub-national units have true taxing authority.Fiscal decentralization, regional solidarity, efficiency, preferences for equality

Tobin meets Oates: Solidarity and the optimal fiscal federal structure

We explore the implications for the optimal degree of fiscal decentralization when people’s preferences for goods and services, which classic treatments of fiscal federalism (Oates, 1972) place in the purview of local governments, exhibit specific egalitarianism (Tobin, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.fiscal decentralization, specific egalitarianism, solidarity, externalities.

Why do differences in the degree of fiscal decentralization endure?

Differences in the degree of fiscal decentralization observed between the U.S. and many countries in Europe cannot be explained within the standard theory of fiscal decentralization. By introducing preferences for solidarity - equality in the provision of public goods and services across regions - we show that different decentralization schemes can coexist as efficient choices. We develop a model of fiscal decentralization that incorporates tastes for solidarity, multiple levels of government, and various tax and transfer instruments. We find that when solidarity is added to the traditional fiscal-federalism framework, the choice along the decentralized-to-centralized spectrum shifts toward a more centralized system

Fiscal decentralization policies and sub-national government debt in evolving federations

As part of a process of democratization, many countries spanning Europe, Latin Amertica, Africa, and Asia are reorganizing their governments by devolving fiscal responsibility and authority to newly empowered regional and local governments. Although decentralization in each country proceeds differently, a common element tends to be an initially heavy reliance on central government grants to fund regional spending. We develop a theoretical model of regional borrowing decisions in which the incentives for regional borrowing depend crucially on how the regions expect the federal system of finance to evolve. We examine the implications of the model using data on Spanish regions for the period 1984-1995 and find evidence that regions may be borrowing inefficiently in response to incentives imbedded in the Spanish system of fiscal decentralization.Fiscal decentralization, borrowing incentives