Interjurisdictional Competition and Local Government Spending in U.S. Metropolitan Areas

Abstract

Using a new comprehensive data set of 314 U.S. metropolitan areas (or all metro areas for which comparable historical data were available), this article provides a newtest of the Leviathan hypothesis that there is an inverse relationship between fiscal exploitation and the amount of interjurisdictional competition. Unlike much previous work, this article focuses on the local level, where the residential mobility that drives that interjurisdictional competition is at its highest. Consistent with the Leviathan hypothesis, the results indicate that there is a negative relationship between interjurisdictional competition and spending growth, and this result holds for two different measures of spending and three different time periods. However, the results for spending levels are less supportive.