Local Government Expenditures: A Social Welfare Analysis

ANUMBER of economists have endeavored to explain one or more types of local government expenditures. Hawley 6, Brazer 3, Hirsch 7, and Hansen 5 have been prominent among these. Each has employed a one-equation multiple-regression model to express per capita local expenditures as a function of selected independent variables using crosssection data. This paper also contains a multiple-regression analysis of per capita crosssection data. However, two equations derived from explicit optimizing behavior are used. The theory of collective choice through the medium of a social-welfare function was introduced by Bergson 2, and extended by Samuelson 8, Arrow 1, and Graaff 4. Theil 9, has developed an elaborate empirically oriented analysis in which quadratic social-welfare functions play a major role. Beyond this, social-welfare functions have seldom served as a basis for empirical work. This paper attempts another move in the empirical direction. Some of the concepts of social-welfare analysis are applied to the expenditure and tax decisions of local governments. The collective consumer is the populace of a local area. Collective decisions are made by elected representatives following the rules of a democratic society. It is postulated here that the resultant public expenditure and tax decisions can be explained as if they were the result of maximizing a social welfare function subject to a social budget constraint, both defined in expenditure space. Particular forms for social, or in the current context community, welfare functions and budget constraints are assumed and the consequences of community welfare maximization examined in the next section of this paper. The third section contains descriptions of data, procedures and results for empirical analyses of United States counties on a cross-section basis using the concepts of the preceding section. The behavior implications of estimates for metropolitan and nonmetropolitan counties are examined in the following two sections. A final section contains some concluding remarks.