Fiscal Home Rule
31 Pages Posted: 8 Apr 2009 Last revised: 14 May 2009
Date Written: April 8, 2009
Local governments often enjoy "home rule," in the sense that they are able to initiate legislation concerning municipal affairs without obtaining the prior consent of the state legislature. At the same time, these localities often are able to exercise limited discretion over revenue raising. In theory, at least, the inability to raise funds constrains the exercise of substantive home rule authority. Moreover, the specific restrictions that states often impose on municipalities instantiates a particular, non-redistributive view of local government and, by restricting the set of fiscal tools that are available to the locality, arguably causes deviations from an ideal market for residence. This Article discusses the constraints that localities often face with respect to imposing taxes on residents and issuing debt to pay for capital projects. While there are plausible explanations for these limitations, restrictions on fiscal home rule must ultimately be weighed against the distortions that they cause when localities seek to circumvent them. Reliance on market mechanisms to select a locality's taxing and debt structure may produce superior results.
Keywords: home rule, local government, interlocal competition, Tiebout
JEL Classification: H21, H71, R51, K00
Suggested Citation: Suggested Citation