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The Relationships Between Costs and User Charges: The Case of a Norwegian Utility Service

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  • Lars-Erik Borge
  • Jørn Rattsø

Abstract

The paper investigates the relationships between costs and user charges in the sewage industry in Norwegian local governments. The purpose of the analysis is to answer the following questions: (i) To what extent is a higher unit cost passed on to consumers in terms of a higher user charge? (ii) Does user charge financing lead to higher or lower unit cost? The econometric analysis indicates that around 40 per cent of a cost increase is passed on to consumers in terms of higher user charge. Moreover, user charge financing has a significant negative effect on the unit cost. An increase in the degree of user charge financing by 10 per cent-points is predicted to reduce the unit cost by 5-8 per cent.

Suggested Citation

  • Lars-Erik Borge & Jørn Rattsø, 2003. "The Relationships Between Costs and User Charges: The Case of a Norwegian Utility Service," CESifo Working Paper Series 1033, CESifo.
    • Handle: RePEc:ces:ceswps:_1033
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    References listed on IDEAS

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    1. Lars-Erik Borge & Jørn Rattsø, 1998. "Demographic Shift, Relative Costs and the Allocation of Local Public Consumption in Norway," Chapters, in: Jørn Rattsø (ed.), Fiscal Federalism and State–local Finance, chapter 5, pages 71-92, Edward Elgar Publishing.
    2. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    3. Borge, Lars-Erik, 2000. "Charging for public services: the case of utilities in Norwegian local governments," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 703-718, December.
    4. Hoxby, Caroline M., 1999. "The productivity of schools and other local public goods producers," Journal of Public Economics, Elsevier, vol. 74(1), pages 1-30, October.
    5. Miller, Gary J. & Moe, Terry M., 1983. "Bureaucrats, Legislators, and the Size of Government," American Political Science Review, Cambridge University Press, vol. 77(2), pages 297-322, June.
    6. Borge, Lars-Erik, 1995. "Economic and Political Determinants of Fee Income in Norwegian Local Governments," Public Choice, Springer, vol. 83(3-4), pages 353-373, June.
    7. Glaeser, Edward L, 1996. "The Incentive Effects of Property Taxes on Local Governments," Public Choice, Springer, vol. 89(1-2), pages 93-111, October.
    8. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
    9. Borge, Lars-Erik & Rattsø, Jørn, 2008. "Property taxation as incentive for cost control: Empirical evidence for utility services in Norway," European Economic Review, Elsevier, vol. 52(6), pages 1035-1054, August.
    10. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645, Elsevier.
    11. Jorid Kalseth & Jørn Rattsø, 1998. "Political Control of Administrative Spending: The Case of Local Governments in Norway," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 63-83, March.
    12. Inman, Robert P., 1989. "The local decision to tax : Evidence from large U.S. Cities," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 455-491, August.
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    Cited by:

    1. Lars-Erik Borge & Marianne Haraldsvik, 2009. "Efficiency potential and determinants of efficiency: an analysis of the care for the elderly sector in Norway," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 468-486, August.
    2. Borge, Lars-Erik & Rattsø, Jørn, 2008. "Property taxation as incentive for cost control: Empirical evidence for utility services in Norway," European Economic Review, Elsevier, vol. 52(6), pages 1035-1054, August.
    3. Jørn Rattsø & Jon Hernes Fiva, 2005. "Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice," Working Paper Series 5305, Department of Economics, Norwegian University of Science and Technology, revised 02 Sep 2005.
    4. repec:idb:brikps:445 is not listed on IDEAS
    5. Richard M Bird & Enid Slack, 2007. "An Approach to Metropolitan Governance and Finance," Environment and Planning C, , vol. 25(5), pages 729-755, October.

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    More about this item

    Keywords

    cost control; user charges; sponsor-bureau model; utility service;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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