Table of Contents

The Elgar Companion to Public Economics

The Elgar Companion to Public Economics

Empirical Public Economics

Elgar original reference

Edited by Attiat F. Ott and Richard J. Cebula

Attiat Ott and Richard Cebula have recognised the need to present, in an accessible and straightforward way, the voluminous literature in the public economics arena. Advances in econometric techniques and the spillover of knowledge from other disciplines made it difficult, not only for students but also for lecturers, to accurately find the information they need.

Chapter 9: Strategic Interaction Among Local Governments: A Spatial Analysis of Spillover of Public Goods

Soma Ghosh

Subjects: economics and finance, public choice theory, public sector economics, politics and public policy, public choice

Extract

Soma Ghosh 1 Introduction An analysis of spillover of public goods is usually associated with a federal– fiscal system, where responsibility of provision of public services is allocated across multi-level units of the government. One of the unique characteristics of a public good that distinguishes it from a private good is that it gives rise to externality or spillover. Spillover occurs when a service provided by one community benefits (or harms) residents of other communities. Examples of spillovers are many; an increase in pollution abatement of one state improves the environmental quality of neighboring states; an increase in crime in one state may harm residents of neighboring states and so on. In the US federal system, local governments do not receive massive financial aid from higher levels of government. Rather, they rely on own sources of revenue to finance their services. Few tax bases are available to local governments. Thus, to expand their bases incentive packages such as tax breaks, low interest loans, grants and other financial incentives are offered by many counties (as well as cities) as they compete for residents and businesses. As pointed out by Tiebout (1956), fiscally induced migration among jurisdictions is motivated by the entire fiscal package, that is, by the level of public services relative to the tax burden. Local jurisdictions might have an incentive not only to keep their tax burdens low but also to provide ‘similar’ levels of public services to keep their community in line with others. Interdependence among local...

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