Local Policy Choice: Theory and Empirics
David R. Agrawal
William H. Hoyt
John D. Wilson
Journal of Economic Literature
no. 4, December 2022
This paper critically surveys the growing literature on the policy choices of local governments. First, we identify various reasons for local government policy interactions, including fiscal competition,
bidding for firms, yardstick competition, expenditure spillovers, and Tiebout sorting. We discuss theoretically what parameters should be estimated to determine the reason for competition among
local governments. We emphasize how the policy outcomes emerging from this competition are affected by the presence of constraints imposed by higher-level governments. Second, we integrate
theoretical and empirical analyses on the effects of fiscal decentralization on mobility, spillovers, fiscal externalities, economic outcomes, and distributional issues. Third, we identify key issues that
arise in the empirical estimation of strategic interactions among local governments and highlight recent quasi-experimental evidence that has attempted to identify the mechanism at work. Finally,
a synthesis model, containing multiple mechanisms and fiscal instruments, resolves some puzzles and provides guidance for future research.
Agrawal, David R., William H. Hoyt, and John D. Wilson.
"Local Policy Choice: Theory and Empirics."
Journal of Economic Literature,
Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Taxation, Subsidies, and Revenue: General
State and Local Taxation, Subsidies, and Revenue
State and Local Budget and Expenditures
State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects
Intergovernmental Relations; Federalism; Secession
Finance in Urban and Rural Economies