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Expenditure Competition

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  • Roger H. Gordon
  • John D. Wilson

Abstract

Given the temptation on government officials to use some of their budget for 'perks,' residents face the problem of inducing officials to reduce such 'waste.' The threat to vote out of office officials who perform poorly is one possible response. In this paper, we explore the effect that competition for residents induced by fiscal decentralization has on 'waste' in government. We find not only that such competition reduces waste and raises the utility of residents, but also that it should increase the desired level of public expenditures, and to a point above the level that jurisdictions would choose if they could coordinate. These results are in sharp contrast to the presumed effects from such 'tax competition,' and suggest an additional advantage of fiscal decentralization.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8189.

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Date of creation: Mar 2001
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Publication status: published as John Douglas Wilson & Roger H. Gordon, 2003. "Expenditure Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 399-417, 04.
Handle: RePEc:nbr:nberwo:8189

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  1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 25-45, March.
  2. John Anderson & Hendrik van den Berg, 1998. "Fiscal Decentralization and Government Size: An International Test for Leviathan Accounting for Unmeasured Economic Activity," International Tax and Public Finance, Springer, Springer, vol. 5(2), pages 171-186, May.
  3. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  4. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  5. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  6. Hoxby, Caroline M., 1999. "The productivity of schools and other local public goods producers," Journal of Public Economics, Elsevier, Elsevier, vol. 74(1), pages 1-30, October.
  7. Glaeser, Edward L, 1996. " The Incentive Effects of Property Taxes on Local Governments," Public Choice, Springer, Springer, vol. 89(1-2), pages 93-111, October.
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