Urban Public Finance
America's local governments spend about one-eighth of our national income, one-fourth of total government spending, and employ over 14 million people. This paper surveys the large and growing economics literature on local governments and their finances. A primary difference between local and national government is the ease of labor mobility within countries, which disciplines local governments and means that heterogeneous service levels can be beneficial, but mobility also challenges local attempts at redistribution. The empirical literature on mobility responses to local government is distinguished, but remains a pressing area for future research. We have sophisticated models of local spending, tax policy and institutional design, but research is often far less developed on even basic questions of costs and benefits of core local public services.
I am grateful for financial assistance to the Taubman Center for State and Local Government. Kristina Tobio and Peter Ganong provided helpful research assistance. Alan Auerbach, Patrick Kline, Joel Slemrod, Laszlo Sandor, Ugo Troiano and David Wildasin provided helpful comments and suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Handbook of Public Economics Volume 5, 2013, Pages 195–256 handbook of public economics, vol. 5