Year of Publication

2018

Degree Name

Doctor of Philosophy (PhD)

Document Type

Doctoral Dissertation

College

Graduate School

Department

Public Policy and Administration

First Advisor

Dr. David E. Wildasin

Abstract

This dissertation seeks to develop the subject of local public finance in a manner consistent with the political economy of local governments. For ease of description, each essay will be discussed briefly.

The first essay is titled "The Provision of Generalized Local Public Goods Financed by Distortionary Taxation." This essay 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 can simultaneously enter 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. A theoretical analysis provides a cost-benefit rule for public good provision by a rent-maximizing local government facing mobile households. Illustrative calculations of the marginal cost of public funds are provided. Calibrated to U.S. data, the role of intergovernmental transfers on the provision of infrastructure by rent-maximizing local governments is analyzed. Theoretical evidence of the higher responsiveness of local governments to matching grants relative to lump-sum grants is provided.

The second essay is titled "The Impact of Local Households' Housing Tenure on Local Public Debt Levels." This essay investigates the relation between local housing tenure and local public debt. It does this by establishing housing tenure as a theoretical basis for the potential differences in how households view public debt. Homeowners capitalize the burden of local public debt into their home value, while renters do not. A hypothesis is generated that an increase in the renter share of households in a locality leads to higher levels of local public debt, all else equal. Using an instrumental variable approach, the empirical evaluation shows an increase in the proportion of renters leads to higher levels of public debt in a panel data set of U.S. local governments. Specifically, a one percentage point increase in the percent of renters increases unfunded public debt per household by $400, or about 7% of the average local debt level, and 24% of the county with the median debt level. This relationship is robust across multiple specifications.

The third essay is titled "A Spatial Econometric Analysis of Local Households' Housing Tenure on Local Public Debt Levels: Implications for Federalism." This essay extends the model of the second essay by measuring the spatial spillovers using a spatial autoregressive model with autoregressive disturbances. The existence and magnitude of local government spillovers related to local public debt levels are used to inform policy makers at higher levels of government. The analysis identifies possible geographic segmentation of the municipal bond markets and the role of special district debt as a key component of the spatial distribution of local public debt. Additionally, a positive spatial disturbance is found.

Digital Object Identifier (DOI)

https://doi.org/10.13023/etd.2018.246

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