Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

2-1-1999

Publication Source

Journal of Public Economics

Volume

71

Issue

2

Start Page

247

Last Page

273

DOI

10.1016/S0047-2727(98)00071-1

Abstract

The provision of public services through national legislatures gives legislators the chance to fund locally beneficial public projects using a shared national tax base. Nationally financed and provided local (congestible) public goods will be purchased at a subsidized price below marginal cost and may be inefficiently too large as a consequence. An important assumption behind this inefficiency is that national legislators in fact demand more of the locally beneficial project as the local price for projects declines. This paper provides the first direct test of this important assumption using legislators' project choices following the passage of the Water Resources Development Act of 1986 (WRDA'86). We find legislators' chosen water project sizes do fall as the local cost share rises, with a price elasticity of demand ranging from −0.81 for flood control and shoreline protection projects to −2.55 for large navigation projects. The requirement of WRDA'86 that local taxpayers contribute a greater share to the funding of local water projects reduced overall proposed project spending in our sample by 35% and the federal outlay for proposed project spending by 48%.

Copyright/Permission Statement

© 1999. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

pork barrel spending, federal budget, cost sharing, water projects

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Date Posted: 27 November 2017