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Off-budget activities of local government: Comment

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  • Robert Blewett

Abstract

Bennett and Dilorenzo have provided evidence that limitations on taxes and spending induce a proliferation of special purpose local government. They conclude that the effects on spending were less than originally supposed. Whatever the effects on total spending, a very important effect on the limitations is an induced change in the fiscal constitution of local government. Using a public choice approach, this institutional change was found to have certain desirable features. Decreased fiscal illusion and increased accountability is obtained by separating the functions of government and their sources of revenue. This is done by placing general purpose government expenditures ‘off-budget’ and on to a separate special purpose government budget. In effect, the proliferation of governmental units allows for the earmarking of revenues. This allows for more rational decisions in a democratic setting and also limits the exploitation of taxpayers in a nondemocratic setting. The proliferation of governments also allows for more competition among governments and lower public service costs. In addition, alternatives in public services levels may increase consumption efficiency. The conclusion of this analysis is that tax limitations have brought about an unforeseen improvement in the structure of local government. While the actual implementation in particular cases may not always lead to desirable results, there is hope for improvement. The important consideration is not whether spending is at some particular optimal level, but whether the fiscal constitution has changed so as to generate more rational outcomes. As Professor Buchanan has emphasized, economists should be ‘process-oriented’ rather than ‘outcome-oriented.’ This paper has presented analysis to indicate that the fiscal processes of local government may well have been improved in an unexpected manner. Copyright Martinus Nijhoff Publishers 1984

Suggested Citation

  • Robert Blewett, 1984. "Off-budget activities of local government: Comment," Public Choice, Springer, vol. 42(2), pages 205-211, January.
    • Handle: RePEc:kap:pubcho:v:42:y:1984:i:2:p:205-211
    DOI: 10.1007/BF00124163
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    References listed on IDEAS

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    1. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    2. Thomas Dilorenzo, 1981. "The expenditure effects of restricting competition in local public service industries: The case of special districts," Public Choice, Springer, vol. 37(3), pages 569-578, January.
    3. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    4. James Bennett & Thomas Dilorenzo, 1982. "Off-budget activities of local government: The bane of the tax revolt," Public Choice, Springer, vol. 39(3), pages 333-342, January.
    5. Wagner, Richard E & Weber, Warren E, 1975. "Competition, Monopoly, and the Organization of Government in Metropolitan Areas," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 661-684, December.
    6. Martin, Dolores Tremewan & Wagner, Richard E, 1978. "The Institutional Framework for Municipal Incorporation: An Economic Analysis of Local Agency Formation Commissions in California," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 409-425, October.
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    2. David Chicoine & Norman Walzer, 1986. "Factors affecting property tax reliance: Additional evidence," Public Choice, Springer, vol. 49(1), pages 17-28, January.
    3. Pérez López, Gemma & Plata Díaz, Ana María & Zafra Gómez, José L. & López Hernández, Antonio M., 2013. "Deuda viva municipal en un contexto de crisis económica: análisis de los factores determinantes y de las formas de gestión," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 16(2), pages 83-93.
    4. John Merrifield, 1994. "Factors That Influence the Level of Underground Government," Public Finance Review, , vol. 22(4), pages 462-482, October.
    5. Ding, Chengri & Niu, Yi & Lichtenberg, Erik, 2014. "Spending preferences of local officials with off-budget land revenues of Chinese cities," China Economic Review, Elsevier, vol. 31(C), pages 265-276.
    6. David Cantarero & Marta Pascual & Roberto Fernandez & María A. García-Valiñas, 2004. "Local government debt: an application to the Spanish case," ERSA conference papers ersa04p282, European Regional Science Association.

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