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The provision of infrastructure: benefit–cost criteria for optimizing local governments

T. Daniel Woodbury ()
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T. Daniel Woodbury: Young Harris College

International Tax and Public Finance, 2020, vol. 27, issue 3, No 4, 552-574

Abstract: Abstract This paper models the provision of a local public good that is simultaneously utilized as a public consumption good and a public intermediate good. Since the public good enters both utility and production functions, it is considered a “generalized public good.” This is done to model the provision of infrastructure by sub-federal governments, which is financed with taxes on local residents. Households are mobile in the model, and the theoretical analysis provides a benefit–cost rule for public good provision by a rent-maximizing local government. Illustrative calculations of the marginal cost of public funds are provided, and they show a wide range of values matching previous estimates of the marginal productivity of infrastructure. The impact of intergovernmental transfers on the provision of infrastructure by rent-maximizing local governments is presented.

Keywords: Public goods; Public inputs; Infrastructure; Cost–benefit analysis; Fiscal federalism (search for similar items in EconPapers)
JEL-codes: H40 H70 R50 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10797-019-09577-2

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Handle: RePEc:kap:itaxpf:v:27:y:2020:i:3:d:10.1007_s10797-019-09577-2