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Changing the Price of Pork: The Impact of Local Cost Sharing on Legislators' Demand for Distributive Public Goods

  • Alison F. DelRossi
  • Robert P. Inman
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    The provision of public services through national legislatures gives legislators the chance to fund locally-beneficial public projects using a shared national tax base. Nationally-financed, local public goods will be purchased at a subsidized price below marginal cost and may be inefficiently too large as a consequence. An important assumption behind this conclusion is that national legislators in fact demand more of the locally-beneficial project as the local price for projects declines. This paper provides the first direct test of this important assumption using legislators' project choices following the passage of the Water Resources Development Act of 1986 (WRDA'86). We find legislators' chosen water project sizes do fall as the local cost share rises, with a price elasticity of demand ranging from -1.3 for flood control and shoreline protection projects to perhaps as high as -2.5 for large navigation projects. The requirement of WRDA'86 that local taxpayers contribute a greater share to the funding of local water projects reduced overall project spending in our sample by 35 percent and the federal outlay for project spending by 48 percent.

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    File URL: http://www.nber.org/papers/w6440.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6440.

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    Date of creation: Mar 1998
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    Publication status: published as Journal of Public Economics (1999).
    Handle: RePEc:nbr:nberwo:6440
    Note: PE
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    1. Craig, Steven G., 1987. "The impact of congestion on local public good production," Journal of Public Economics, Elsevier, vol. 32(3), pages 331-353, April.
    2. Moffitt, Robert A., 1984. "The effects of grants-in-aid on state and local expenditures : The case of AFDC," Journal of Public Economics, Elsevier, vol. 23(3), pages 279-305, April.
    3. Inman, Robert P & Fitts, Michael A, 1990. "Political Institutions and Fiscal Policy: Evidence from the U.S. Historical Record," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(0), pages 79-132.
    4. Leonard Shabman & G. Edward Dickey, 1986. "Federal Financial Responsibility For Coastal Port Development: A Study Of The Process Of Policy Redefinition," Review of Policy Research, Policy Studies Organization, vol. 6(2), pages 358-365, November.
    5. Del Rossi, Alison F, 1995. " The Politics and Economics of Pork Barrel Spending: The Case of Federal Financing of Water Resources Development," Public Choice, Springer, vol. 85(3-4), pages 285-305, December.
    6. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
    7. Bergstrom, Theodore C & Rubinfeld, Daniel L & Shapiro, Perry, 1982. "Micro-Based Estimates of Demand Functions for Local School Expenditures," Econometrica, Econometric Society, vol. 50(5), pages 1183-1205, September.
    8. Crain, W Mark, 1999. "Districts, Diversity, and Fiscal Biases: Evidence from the American States," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 675-98, October.
    9. Gilligan, Thomas W & Matsusaka, John G, 1995. "Deviations from Constituent Interests: The Role of Legislative Structure and Political Parties in the States," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 383-401, July.
    10. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-96, June.
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