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The Journal of Private Enterprise 24 ( 2 ), 2009 , 75-86 Spatially Targeted Government Spending and Heterogeneous Constituent Cost Shares John Charles Bradbury * Kennesaw State University E . Frank Stephenson Berry College Abstract The law of 1 / n ( Weingast , Shepsle , and Johnsen , Journal of Political Economy , 1981 ) posits a positive relationship between the size of an elected body and government spending because the taxpayers in each district bear only 1 / nth of the total tax burden . Relying on variation in the number of seats in elective bodies , evidence supportive of the law of 1 / n has been found at all levels of representative government . It is possible , however , that these findings suffer from endogeneity bias : Polities preferring larger government spending may also prefer to have more elected officials . In this paper , we propose an alternative test of the law of 1 / n . In addition to postulating that larger elective bodies will have higher levels of government spending , the law of 1 / n also implies that , ceteris paribus , there will be a negative relationship between locally targeted government spending and a jurisdiction s share of the taxation required to finance the spending . We test this prediction by examining the relationship between spatially targeted government spending and the tax burden across states . We find a negative relationship between local tax contributions to the common taxbase and locally targeted government spending for aggregate locally targeted spending and for six of eight subcategories . These findings are robust to the inclusion of other variables thought to influence the distribution of spending on parochial projects . JEL Codes : D72 , H11 , H50 Keywords : Law of 1 / n ; Representative government ; Public expenditure ; Fiscal commons * We thank the anonymous referees and participants at the 2003 Public Choice Society meetings for helpful suggestions . 75
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76 Bradbury and Stephenson / The Journal of Private Enterprise 24 ( 2 ), 2009 , 75-86 I . Introduction Political economists have long viewed fiscal policy in democracies as a common pool problem a tragedy of the fiscal commons . Selfinterested politicians seek to direct public resources from the common budgetary pool toward their constituents in order to enhance their political standing . A higher level of government spending , an overgrazing of the fiscal commons , is the result as logrolling politicians collude to support each other s projects . As noted by Tullock ( 1959 ), such overspending is facilitated by majority rule because party membership reduces the bargaining costs of logrolling and because the majority only bears a portion of the cost of public projects that benefit its interests . While the benefits of particular projects may be concentrated among a constituency , the tax costs are borne by the entire polity . Therefore , politicians may seek to approve local spending even where the total costs exceed the total benefits . Weingast , Shepsle , and Johnsen ( 1981 ) applied the phenomenon of concentrated benefits funded by a dispersed tax burden to legislature size to develop the law of 1 / n .” 1 They hypothesized that the cost burden borne by constituents is a function of the number of geographically represented districts ( n ) in a legislature . Each district receives the full benefits of parochial spending , while bearing only 1 / nth of the cost . As the number of legislative districts increases , the district cost share falls ; thus , there exists a positive correlation between the number of legislative districts and public spending . Assuming legislators logroll with fellow members to ensure passage of pet projects until the gains from trade are exhausted ( a phenomenon known as universalism ), spending will exceed the optimal level . In recent years the law of 1 / n has received strong empirical support . Relying on variation in the number of seats in elective bodies , evidence supportive of the law of 1 / n has been found across U . S . states ( Gilligan and Matsusaka , 1995 and 2001 ; Campbell , Finney , and Mitchell , 2007 ), across countries ( Bradbury and Crain , 2001 ; Perotti and Kontopoulos , 2002 ), and across local government 1 Bradbury and Crain ( 2001 ) examine the law of 1 / n in a bicameral context . Chen and Malhotra ( 2007 ) and Primo and Snyder ( 2008 ) offer theoretical qualifications to Weingast , Shepsle , and Johnsen ( 1981 ). Our purpose in this paper is not to enter the theoretical debate but to propose a solution to an endogeneity problem present in previous empirical papers ( see below ).
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Bradbury and Stephenson / The Journal of Private Enterprise 24 ( 2 ), 2009 , 75-86 77 units ( Baqir , 2002 ; Bradbury and Stephenson , 2003 ; Schaltegger and Feld , 2009 ). However , these studies may suffer from an endogeneity problem between legislature or council size and government spending because preferences for greater government spending may also be correlated with a desire for a larger representative body . Indeed , citing this endogeneity critique , Petterson-Lidbom ( 2001 ) finds that exogenous , statutorially mandated increases in Swedish local council sizes are associated with lower government spending . Rather than relying on variation in the size of elective bodies as a proxy for the local cost of spatially targeted government spending , this paper examines the relationship between tax shares and locally targeted government spending obtained from the common taxbase . 2 A common pool taxbase implies that districts bearing a small share of the tax burden will have higher amounts of locally targeted projects because they bear lower fractions of the costs than do districts with large shares of the tax burden . Symbolically , instead of approving all projects up to the point at which MB = C , politicians will approve projects up to the point at which MB = T iC , where MB is the marginal benefit of a project , T i is state i s share of the project s cost C , 0 < T i < 1 and T i = 1 . Hence , our paper builds upon the existing law of 1 / n literature by explicitly recognizing that districts do not bear equal shares of the cost of providing locally targeted spending . Consequently , our paper provides a robustness check for the existing law of 1 / n literature ; if representatives respond to differences in local cost burdens in the allocation of parochial goods , there is more reason to think that the positive correlation between legislature size and government spending can be attributed to the law of 1 / n . The paper is organized as follows . The next section describes our data and the empirical framework . Section III discusses the results , and Section IV concludes . II . Data and Empirical Framework We test the relationship between constituent cost burden and parochial spending using 2001 data on locally targeted government spending compiled by the organization Citizens Against Government 2 DelRossi and Inman ( 1999 ), using a natural experiment , take a similar approach . Relying on changes in the local / federal cost sharing requirements in the Water Resources Development Act of 1996 , they find that increases in the cost share are associated with a smaller demand by legislators for locally targeted projects .
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78 Bradbury and Stephenson / The Journal of Private Enterprise 24 ( 2 ), 2009 , 75-86 Waste ( CAGW ). CAGW analyzes the federal government s budget and publishes an annual Pig Book listing what it deems to be wasteful spending projects contained in the federal budget . The items are earmarked for specific locations ( e . g ., the so-called bridges to nowhere in Alaska ); general programs such as Medicare are not included . ( Hence , another improvement of our paper over the existing literature is the use of spending that is targeted to specific localities rather than overall levels of spending in a jurisdiction . 3 ) We use the spending items contained in the Pig Book , aggregated by state and by appropriations subcommittee bill , as our measure of locally targeted government spending . 4 Using ordinary least squares ( OLS ) and seemingly unrelated regression ( SUR ), we estimate the amount of locally targeted government spending flowing to each state according to the following equation : P i = α + β ( T i ) + λX i + ε I , ( 1 ) where P i is the natural log of each state s per capita spending on parochial projects . As will be evident below , we estimate the equation both for the total geographically targeted spending flowing to each state ( via OLS ) and for separately for 8 appropriations subcategories of spending earmarked for each state ( via SUR ). Since we are working with state aggregates ( as opposed to , say , congressional district aggregates ) of government spending , our variable of interest is each state s share of the cost of this locally targeted government spending . We measure each state s share by its fraction of the total personal income taxes collected by the federal government T i . 5 This share varies widely across states because of differences in state population and income . Wealthy and populous 3 Several think tanks compile data on aggregate federal money received by the states . For examples , see the Tax Foundation ( www . taxfoundation . org / taxdata / topic / 92 . html ) and the Northeast-Midwest Institute ( www . nemw . org / fundsrank . htm ). 4 We thank Keri Anderson and John Coleman for exceptionally diligent research assistance on this part of the project . 5 Our use of shares of the federal income tax implies that , at the margin , it is this tax that funds additional government spending . While we think this is the most reasonable assumption , future research might investigate the robustness of this paper s findings to measures of tax shares constructed using other federal taxes .
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