chapter  16
34 Pages

Local Public Finance

This chapter explores the nature of social decision making and the nature of local public goods before observing how the optimal quantity of these goods is determined and financed. It devotes to the relations of government hierarchies and how local governments react to competition among jurisdictions of the same level. The decisions of local government directly affect residents of that jurisdiction. Counties determine the welfare benefits for low-income households. Local governments finance, and thereby govern the quality of elementary and secondary education. Pure public goods provided by a central government, such as national defense, have distinct characteristics that local public goods do not have. Municipalities are considered clubs and their local public goods are thus called club goods. Congestion diminishes the benefits of the good for each user, but exclusion is possible for most local public goods. The Tiebout model is the cornerstone of local public finance theory.