4 - Piling On: The Problem of Concurrent Taxation

Summary

The preceding chapters have set the stage for an empirical analysis of public finance under jurisdictional overlap. In Chapters 1 and 2, I argued that institutional changes over the past 50 years challenge Tiebout's (1956) vision of the local public sector as a competitive marketplace. The rise of special-purpose districts as the most common and fastest-growing institution of local government in the United States means that spatially overlapping jurisdictions, not the fragmented territorial monopolies envisioned by Tiebout and his followers, dominate the contemporary local government landscape. In Chapter 3, I presented a formal argument that this sort of jurisdictional overlap leads to higher tax rates and fiscal externalities among governments that share a common tax base. These problems arise because individual jurisdictions seek to provide benefits to special-interest constituencies while the costs are borne by all taxpayers. The present chapter is dedicated to providing empirical evidence of the existence and magnitude of this overlap effect.

MEASURING JURISDICTIONAL OVERLAP

The model developed in Chapter 3 yields a simple hypothesis: There will be more aggregate spending, and hence higher taxation, for a given bundle of services the greater the number of functionally specialized jurisdictions involved in its provision. To test this hypothesis, ideally, one would want a comprehensive data set of the boundaries of all governmental entities in some set of geographic units, say counties or metropolitan statistical areas (MSAs).