Congestion, Technical Returns, and the Minimum Efficient Scales of Local Public Expenditures: An Empirical Analysis for Japanese Cities
On the basis of the standard model of local public production, we delineate the factors that account for the "U-shaped" per capita local public expenditures and relate them to construct an efficiency indicator for local populations. We articulate that population-induced changes in the per capita cost are related to the relative magnitude between the (i) technical elasticity of scale, which characterizes technology for the direct outputs produced by a government, and (ii) congestion elasticity, which characterizes consumption technology for the public services consumed by citizens. Those two elasticities allow us to construct an indicator that quantifies the distance of a local population from its minimum efficient scale (MES) for local public expenditures. We then estimate the urban public production structure in Japan and apply the analysis to the Japanese case. With the estimates obtained, we rank the Japanese cities according to the calculated values of the indicator.
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