Fragmentation, Fiscal Mobility, and Efficiency

Abstract

This paper examines whether greater fragmentation in local government improves efficiency. Tiebout "exiting" is the general theoretical underpinning for the belief that fragmentation should improve efficiency. This paper argues that previous evidence for the greater efficiency of fragmented government is weak because the complex nature of many local government systems is not consistent with the institutional structures supposed in the models, and does not allow for simple testing. Using evidence from England where institutional structures more closely resemble those in the Tiebout model, efficiency is analyzed both at the jurisdictional and metropolitan level in a straightforward manner. No evidence for the supposed positive effects of fragmentation is found. Voice mechanisms may explain why fiscal mobility does not lead to efficiency in the fragmented system of metropolitan England.

Keywords: local government, fragmentation, fiscal mobility, efficiency

JEL Classification: H19, H74