Piling on: Multi-Level Government and the Fiscal Common-Pool
46 Pages Posted: 16 Jun 2008
Date Written: May, 2008
This paper discusses the common-pool problems that arise when multiple territorially overlapping governments share the authority to provide services and levy taxes in a common geographic area. Contrary to the traditional Tiebout model in which increasing the number of competing governments improves efficiency, I argue that increasing the number of overlapping governments results in "overfishing" from the shared tax base. I test the model empirically using data from U.S. counties and find a strong positive relationship between the number of overlapping jurisdictions and the size of the local public sector. Substantively, the "overlap effect" amounts to roughly 10 percent of local revenue.
Keywords: overlapping jurisdictions, special districts, Tiebout, concurrent taxation, tax competition
JEL Classification: H11, H2, H71, H77, H73
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