On The Effects of Local Versus Central Government Financing of Local Services
This paper provides some empirical support for pricing a part of local services on user basis. A model of fiscal responses to grants/user fees, based on a vote-maximizing approach, is tested on both time series and pooled data (1977-1991) for 39 upper-tier municipalities in Ontario, Canada. The exogeneity specification of grants is tested and the test results are taken into account in estimating the model. The results indicate that roughly 70 percent of the municipal governments would find it cheaper to finance local spending by grants than by local taxation. If the grant system is abolished, a majority of these governments would prefer to use some sort of user fees in financing local services. The study suggests that local public services can be provided at a substantially lower per-unit cost if some selected services are priced on user basis.
Local Decision-Making on Capital Spending in US Cities (1980–2000)
In the United States, government investments by states and localities decreased substantially during the last several decades. Substantial decreasing trend of capital investments is observed during the 1970s. Since then, the declining trend has persisted, but it is less skewed. Academic studies pay hardly any attention, however, to the gradual decrease in government investments since 1980s. Thus, the purpose of this study is to investigate the determinants of capital investments by local governments. Especially, under the scheme of fiscal decentralization since the early 1980s, fiscal behaviors of local decision-makers are becoming a more important element in local public service choices. To test nine hypotheses, a time series on 58 city governments is constructed for the years 1980–2000. 3SLS (three stage least squares) regression analysis is conducted because the relationship between the level of municipal capital expenditures and local debt outstanding is assumed to be simultaneous. The result shows that more independent fiscal decision-making power in a jurisdiction is associated with less capital spending.
Supply and Demand for State and Local Services
M ANY cross-section studies exist in the literature attempting to explain variations in per capita state and local expenditures on such services as highways, municipal services, health, and education. Differences in per capita expenditures across states are explained in terms of such factors as differences in population densities, urban-rural distributions, average income levels, age distributions, and numbers of school-age children.' In most of these studies, however, the underlying theory has not been carefully spelled out and, in particular, it is never made clear whether the demographic variables are thought to enter on the demand side or on the supply side of the market for state and local services. In the first part of this paper we look at the theory underlying such regression studies of the determinants of state and local expenditures. We attempt to distinguish between the demand side of the market for such services and the supply (cost) side. In the second part of the paper we obtain empirical estimates of price and income elasticities of demand for state and local services for three broad classifications of services. Finally we discuss a number of interesting applications of our results.