Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and ex...

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Bibliographic Details
Published in:Public finance review 2019-05, Vol.47 (3), p.493-529
Main Authors: Millsap, Adam A., Hobbs, Bradley K., Stansel, Dean
Format: Article
Language:English
Subjects:
Data
Decentralization
Exploitation
Freedoms
Government spending
Hypotheses
Intrusion
Labor market
Local government
Taxation
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Summary:Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions” (p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom” as the dependent variable, which provides a better measure of “total government intrusion into the economy” than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).
ISSN:1091-1421
1552-7530
DOI:10.1177/1091142118817909