Revealed Preferences for the Composition of Local Government Expenditures in US Cities

Abstract This paper examines the revealed preferences for the composition of local public expenditures. It analyzes how the combined system of local governments in US cities may attract people to move to their jurisdiction, captured by change in population and housing prices. The paper examines the complete local public fiscal composition, considering the constrained choice set, in which each expenditure decision affects the rest of the fiscal composition. Furthermore, it makes an explicit distinction between capital outlay and current operations expenditures. The results show that change in population and housing prices are complementary in capturing revealed preferences. Although they both suggest a preference for lower spending/taxes, and allocating spending towards parking facilities and investments in highways, they also reveal different preferences for the allocation of the expenditures. Expenditures on higher education are associated with population growth, whereas expenditures on airports are associated with higher housing prices.