The provision of infrastructure: benefit–cost criteria for optimizing local governments

This paper models the provision of a local public good that is simultaneously utilized as a public consumption good and a public intermediate good. Since the public good enters both utility and production functions, it is considered a “generalized public good.” This is done to model the provision of...

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Bibliographic Details
Published in:International tax and public finance 2020-06, Vol.27 (3), p.552-574
Main Author: Woodbury, T. Daniel
Format: Article
Language:English
Subjects:
Business Taxation/Tax Law
Cost benefit analysis
Costs
Economics
Economics and Finance
Households
Infrastructure
International taxation
Local government
Productivity
Public Finance
Public good
Residents
Taxation
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Summary:This paper models the provision of a local public good that is simultaneously utilized as a public consumption good and a public intermediate good. Since the public good enters both utility and production functions, it is considered a “generalized public good.” This is done to model the provision of infrastructure by sub-federal governments, which is financed with taxes on local residents. Households are mobile in the model, and the theoretical analysis provides a benefit–cost rule for public good provision by a rent-maximizing local government. Illustrative calculations of the marginal cost of public funds are provided, and they show a wide range of values matching previous estimates of the marginal productivity of infrastructure. The impact of intergovernmental transfers on the provision of infrastructure by rent-maximizing local governments is presented.
ISSN:0927-5940
1573-6970
DOI:10.1007/s10797-019-09577-2