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The author points to the contrasting performance of the labour markets of Europe and the United States. He attributes the superior performance of the US to greater labour market flexibility and identifies the areas of unemployment insurance, employment protection and active labour market policies as especially significant. A key element in helping generate better policies is experimentation and decentralisation of decision‐making, something favoured by the distinction between federal and state responsibilities in the US.

User charges have been an increasingly important source of revenue tor local governments. Furthermore, it has been suggested in the public finance literature that user charge finance can increase the efficiency of local government service provision, with the evidence being a reduction of expenditures, ceteris paribus. This paper goes one step further, using an empirical test to distinguishing die quantity effect from the cost effect. An analysis of local sewer service demonstrates that greater reliance on user charge finance does not have a significant impact on the quantity of service provided, but does lead to reduced cost of service. The argument for user charges as an efficiency-enhancing mechanism is thereby strengthened.