Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

Abstract

Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions” (p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom” as the dependent variable, which provides a better measure of “total government intrusion into the economy” than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).

The convergence dynamics of economic freedom across U.S. states

“…Third, racial fractionalization measures the observed negative relationship between ethnic diversity and economic freedom (see, e.g., March et al, 2017; Norton, 2000). Fourth, fiscal decentralization disperses government's power to tax and spend, thus mitigating the size of government and in effect promoting economic freedom, albeit the empirical results are somewhat mixed (see, e.g., Cassette & Paty, 2010; Lawson & Block, 1996; Millsap et al, 2019). Fifth, government leadership and political ideology may have important influences on economic freedom (see, e.g., de Haan & Sturm, 2003; Murphy, 2019), therefore, we include a dummy variable for whether the governor's political affiliation is Democrat.…”

Policy for handling air pollution in Jakarta: Study using System Dynamics Simulation Models

“…The conventional methods applied so far are no longer possible to continue. However, the consideration of using the Leviathan hypothesis (Millsap et al, 2019) is still possible to increase vehicle taxes as implemented in several developed countries, such as Japan, and not follow the pressure group from the Vehicle Brand Holder Sole Agent (BHSA). Also, currently developing issues, such as global warming, environmental protection, and carbon emissions, can be used as indicators for increasing additional tariffs or similar taxes to reduce vehicle congestion or restrictions (Williams et al, 2021;Oderinwale and van der Weijde, 2017).…”

Fiscal decentralization and the size of government: an empirical test of the Leviathan hypothesis

“…The relationship between scal decentralization and the size of the public sector is explained by the rst-and second-generation theories of scal federalism, which take up developments in public choice theory. Whereas the traditional or rst-generation theories of scal federalism are based on the hypothesis of a benevolent government which seeks to maximise the collective welfare function (Oates, 1972;Rubinfeld, 1987), the second-generation theories are based on the fundamental hypothesis of the individual rationality of political actors and consider the government no longer as a "benevolent despot" but simply as an economic actor with its own utility function like all economic agents (Millsap et al, 2019).. Thus, in the analyses combining our variables of interest, we can distinguish three models: the decentralization model (Oates, 1972)the Leviathan restriction model (Brenan and Buchanan, 1980) and the political support model (Grossman & West, 1994 ;Hettich & Winer, 1984).…”