Local Policy Choice: Theory and Empirics

David Agrawal, William H. Hoyt and John D. Wilson

No 8647, CESifo Working Paper Series from CESifo

Abstract: This paper critically surveys the growing literature on the policy choices of local governments. First, we identify various reasons for local government policy interactions, including fiscal competition, bidding for firms, yardstick competition, expenditure spillovers, and Tiebout sorting. We discuss theoretically what parameters should be estimated to determine the reason for competition among local governments. We emphasize how the policy outcomes emerging from this competition are affected by the presence of constraints imposed by higher-level governments. Second, we integrate theoretical and empirical analyses on the effects of fiscal decentralization on mobility, spillovers, fiscal externalities, economic outcomes, and distributional issues. Third, we identify key issues that arise in the empirical estimation of strategic interactions among local governments and highlight recent quasi-experimental evidence that has attempted to identify the mechanism at work. Finally, a synthesis model, containing multiple mechanisms and fiscal instruments, resolves some puzzles and provides guidance for future research.

Keywords: fiscal competition; yardstick competition; spillovers; strategic policy; interdependence; reaction functions; local public finance (search for similar items in EconPapers)
JEL-codes: H20 H40 H70 R50 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Local Policy Choice: Theory and Empirics (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8647

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