Edited by William F. Shughart II, Laura Razzolini and Michael Reksulak
Chapter 11: Federal systems
Public choice has always had a strong interest in federal systems. The Tiebout (1956) model predates the recognition of public choice as a distinct subdiscipline, but Tiebout’s model has a clear public choice foundation in which people ‘vote with their feet’ to support a revealed preference mechanism that can increase the efficiency of public sector resource allocation. In response to Samuelson’s (1954, 1955) claim that one can demonstrate in theory the optimal level of public goods production, Tiebout showed that while there may not be an obvious way of finding that optimum theoretically, federal systems of government offer a practical method for doing so, namely intergovernmental competition. Intergovernmental competition is both efficiency enhancing and a way of aggregating individuals’ preferences in Tiebout’s framework – that is, it is an instrument consistent with the theory of public choice. While federalism was discussed in the public finance literature prior to Tiebout, Tiebout’s article laid a clear foundation on which the public choice literature relating to federal systems has developed. Much of the public choice literature on federal systems builds on Tiebout. Early contributors, such as Barr and Davis (1966), Barlow (1970), Borcherding and Deacon (1972), and Bergstrom and Goodman (1973), looked at the degree to which differences in public sector output across jurisdictions could be accounted for by differences in voter characteristics.
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