Local Policy Choice: Theory and Empirics

Abstract

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. (JEL D72,H20, H71, H72, H73, H77, R51)

Interregional infrastructure, competition for capital, and local public expenditure policies: Evidence from China's high‐speed rail network

“…First, it is related to the literature on fiscal competition. Our empirical results echo the classic theory of fiscal competition, which argues that enhanced mobility of capital intensifies local government competition (see Agrawal et al (2020) and Keen & Konrad (2015) for recent reviews). We provide the first study that empirically examines how interregional infrastructure and the resulting domestic market integration affect fiscal competition.…”

Analytical method to improve the decision-making criteria approach in managing digital social channels

“…It aims to understand how people weigh the costs and benefits of different options and arrive at a final decision. This field encompasses several approaches, including rational choice theory [ 18 , 19 ] (which assumes that individuals make decisions based on a rational, calculation of costs and benefits), behavioral decision theory [ [20] , [21] , [22] ] (which recognizes that psychological and emotional factors influence real-world decision-making), prospect theory [ 23 , 24 ] (which focuses on how people value gains and losses and how they perceive risk), and heuristics and biases [ [25] , [26] , [27] ] (which examines how people use mental shortcuts or rules of thumb to make decisions and how these shortcuts can lead to systematic errors). Regardless of the approach, decision-making theory [ 12 , 13 ] aims to improve our understanding of how people make decisions and to help individuals and organizations make better choices.…”

Hidden Havens: State and Local Governments as Tax Havens?

“…But from an economic or welfare perspective, is there a distinction? As discussed in Agrawal, Hoyt and Wilson (2022), tax competition models can predict that taxes may be "too high" or "too low". Despite popular conception, tax competition need not result in a race-to-thebottom.…”

“…The remainder of this section and the next section draw on material inAgrawal, Hoyt and Wilson (2022).…”