Government Structure and Local Public Expenditures*

The relationship between local government structure and expenditure has received considerable attention, yet there is little consensus on how the features of representative government affect local expenditure decisions. The sole exception is city council size, which has consistently been found to have a positive and significant impact on expenditure. Previous results rely on cross-sectional estimation which may be subject to both omitted variable and potential endogeneity bias. This paper analyzes three components of municipal governments—the form of government, the size of the city council, and the election method of city councilors—and their respective effects on municipal expenditure. In this paper I utilize a comprehensive data set that spans 20 years and contains information on thousands of U.S. cities. The data allow for the use of fixed effects to eliminate time invariant factors which may be biasing previous results. Results from the fixed effects models show that the positive impact of city council size on expenditures is no longer significant. I find that expenditures are invariant to the method of election for all sample sizes and models, except when a more uniform set of public service expenditures is employed. When only a few core areas of expenditure are considered, the fraction of councilors elected by district has a positive and significant effect. In the fixed effects models utilizing cities with populations of 10,000 or more, mayorcouncil governments are associated with lower expenditures, but when cities of all sizes are included there is no effect.