Year of Publication

2011

Degree Name

Doctor of Philosophy (PhD)

Document Type

Dissertation

College

Business and Economics

Department

Economics

First Advisor

Dr. John Garen

Second Advisor

Dr. William Hoyt

Abstract

Questions on the optimal size of government always provoke intense political debate. At the center of this is the public goods problem, where certain goods and services are “under-provided” by the market due to problems with rivalry and excludability. These goods are usually provided by the public sector and financed through taxes. Questions emerge over the optimal level of provision, as different individuals value these goods differently. This dissertation consists of two studies which address preferences for the size of government from different perspectives.

The first study provides a method that can be used to estimate demand for changes in levels of public provision. Using individual level Census data on migration from 1990 and 2000, I demonstrate how preferences are revealed through migration responses. Though policy convergence precludes the estimation of optimal levels for different demographic groups, I find that balanced-budget increases in education expenditures tend to attract most demographic groups while other expenditures tend to repel most individuals. Young, college educated, relatively high-income individuals tend to be more responsive to, and therefore appear to have higher preference intensity for, fiscal changes. This is true even when controlling for their increased propensity to migrate. Evidence inconsistent with welfare migration is found, suggesting that policies intended to address the race-to-the-bottom in welfare benefits may be counterproductive. In addition, the ability of the Tiebout migration process to homogenize a jurisdiction is limited by relatively small fiscal changes among jurisdictions and similar migration responses among demographic groups.

The second study empirically explores the effect of ethnic heterogeneity on government size for countries throughout the world. In the developed world, heterogeneity is found to reduce the size of budgetary government, consistent with previous studies and predictions in the literature. In the undeveloped world, however, heterogeneity is found to increase the size of non-budgetary government and may increase the overall size of government.

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