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Economics of State and Local Government

The first three weeks of the class provide discuss markets and how markets allocate resources but also act as a discovery procedure for new and better ways of doing things. But, if markets are so great, why do we have states? We discuss the demand for order and issues surrounding equity. In this section we also discuss how market failures provide justification for government intervention but with attention to informational constraints and potential incentive problems for government actors.

Supply and taxation 

We start with what governments produce and how that relates to what individuals care about. Then we discuss how inputs are combined to produce output with an emphasis on the input of “coproduction”. We then develop some principles about taxation and discuss the "three big taxes": property taxes, sales/excise taxes, and income taxes.

Demand and provision

The next five weeks we discuss public goods starting with Lindahl taxation. Subsequent lectures are centered around Samuelson's insight that Lindahl taxation creates incentives to send false signals. We proceed to talk about how to extract information from people about how they value public goods. We discuss donations, majority voting, Clarke taxes, Contigent Valuation Methods, and of course Tiebout sorting. With respect to the Tiebout model we also discuss whether competing local governments act as a discovery procedure for better policies in a similar way as standard markets. We discuss local economic development incentives and enterprise zones. Finally, we discuss the metropolitan consolidation debate and the organization of government.