Piling On: The Fiscal Effects of Jurisdictional Overlap

This paper discusses the common-pool problems that arise when multiple territorially overlapping governments share the authority to provide services and levy taxes in a common geographic area. Contrary to a traditional Tiebout model in which increasing the number of local governments increases competition and improves efficiency, when jurisdictions overlap, increasing the number of governments generates externalities and a “tragedy of the fiscal commons” is likely to result. The model is tested empirically with data from U.S. counties. The number of special purpose governments in a county is taken as a measure of the degree of jurisdictional overlap. I find a strong positive relationship between the number of special districts and the size of the local public sector (whether measured in revenues or expenditures), after controlling for other relevant variables. Substantively, the “overlap effect” is on the order of 5 to 10 percent of the total budget. I explore, and reject, several alternative explanations for these findings, including the endogeneity of special district creation. The fiscal commons approach to the local public sector is particularly timely as special districts have become the most numerous and fastest-growing type of local government in the U.S. This analysis suggests that vertical competition among governments is at least as important as the horizontal competition emphasized by Tiebout and his followers. Christopher Berry Harvard University Department of Government [email protected]