THE LONG-RUN ECONOMIC IMPACTS OF FEDERAL,STATE, AND LOCAL FISCAL POLICIES IN METROPOLITAN AREAS*

ABSTRACT. This paper uses new estimates of metropolitan factor demand and output supply functions to study how federal, state, and local fiscal policies affect metropolitan economies. We illustrate our work with findings for ten metropolitan areas in five states for changes in state corporate income taxes, local property taxes, the federal corporate income tax, an investment tax credit, interest rates, public capital stocks, output prices, and tax and regulatory policies affecting gross wages. It is clear from these simulations that a policy that is nominally the same everywhere will have repercussions that vary widely across regions and cities.     

Tradeoffs between Local Taxes and Government Spending as Determinants of Business Location*

Abstract. This paper investigates the effects of local fiscal policy on the location decisions of 3,763 establishments that began operations in Maine between 1993 and 1995. Empirical results, estimated from Poisson and negative binomial regression models, indicate that businesses favor municipalities that spend high amounts on public goods and services, even when these expenditures are financed by an increase in local taxes. This suggests that a local fiscal policy of reduced government spending, to balance a tax cut, may attract fewer new businesses than a policy featuring additional spending and higher taxes.     

Infrastructure shortfall in the United Kingdom: the private finance initiative and government policy

Investment infrastructure is essential for long term economic growth, sustainable regional economic development, and the quality of urban life. Yet the available evidence suggests a significant shortfall in current UK government investment on infrastructure, and a long term pattern of low investment compared to other European countries. Given the pre-occupation of the Labour government with managing expenditures within the parameters set by the previous government, and the vulnerability of any government to financial markets' valuation of current spending plans in relation to interest rates and currency exchange rates, there is little likelihood of major new public spending on infrastructure in the near future. In this context, the Private Finance Initiative (PFI) is very important for the government's plans to make up the shortfall. Although inherited from the previous Conservative government, the PFI has powerful advocates within the Labour government. The PFI is the formal mechanism by which government departments, agencies and instrumentalities, like the National Heath Service, utilise private sector investment capital and, in particular, pension fund assets, to revitalise public services. This paper sets out the institutional history of the PFI, beginning with the Thatcher government's Ryrie Rules, the efforts of the Major Conservative government to make it a viable operational practice, and the reasons why the new government supports PFI and has made significant moves to improve its effectiveness. Still we are sceptical about the future of the PFI. We show that the PFI has foundered upon fundamentally flawed design and the politicians' obsession with control of public sector spending. Notwithstanding recent `reforms', PFI may only succeed if the PFI process is decentralised and linked explicitly with regional development programmes. In any event, given the difficulties posed by the PFI process for private investors, perhaps different institutional responses to infrastructure shortfall should be contemplated, including the introduction of traded infrastructure bonds.     

Local Academic Knowledge Transfers and the Concentration of Economic Activity

In this paper I examine agglomeration effects on the intensity of local knowledge transfers from universities to high technology innovations within the modified Griliches-Jaffe knowledge production function framework. Estimations are carried out at the level of U.S. metropolitan areas. Concentration of high technology employment turns out to be the most important factor promoting local academic knowledge transfers. I find that a "critical mass" of agglomeration must be reached in order to expect substantial local economic effects of academic research spending.     

THE EFFECTS OF LOCAL GOVERNMENT AMALGAMATION ON PUBLIC SPENDING,TAXATION, AND SERVICE LEVELS: EVIDENCE FROM 15 YEARS OF MUNICIPAL CONSOLIDATION

We study how municipal amalgamation affects local government spending, taxation, and service provision in the Netherlands. Employing different models, different control groups, and a number of robustness tests, we find no significant effect on aggregate spending or taxation, although spending on administration is reduced. We explore whether this finding might hide amalgamation effects working in opposite directions for different types of municipalities (e.g., small versus large, or homogeneous versus heterogeneous), cancelling each other out. This does not seem to be the case. We also investigate whether amalgamation leads to better public services instead of lower spending, but find no evidence.     

THE EFFECTS OF REGIONAL SCIENCE AND TECHNOLOGY POLICY ON THE GEOGRAPHIC DISTRIBUTION OF INDUSTRIAL R&D LABORATORIES*

ABSTRACT. The determinants of the geographic distribution of industry R&D activity are examined with particular emphasis on the role of university research as well as state science and technology programs. An analysis of a cross section of metropolitan areas indicates that industry R&D labs are located in areas with state science and technology programs, as well as in areas with higher levels of university research, larger quantities of non-welfare related local government spending, a better educated workforce, and a greater population density.     

The identification of employment centres in Canadian metropolitan areas: the example of Montreal, 1996

The intrametropolitan distribution of economic activities and, specifically, the formation of suburban employment centres has become a major research and policy issue. In spite of an increasing number of detailed analyses of the geography of employment in individual metropolitan areas, no generally accepted and systematic methodology for identifying employment centres exists. Comparisons between metropolitan areas have been highly limited due to both a lack of consistent and comparable data and a plethora of methods. We first present an overview of various methods that have been used to identify employment centres. Using Montreal as a case study, we then evaluate the suitability of various methods in the light of available data on job location in Canadian metropolitan areas. The method that yields the best results is one based upon dual criteria applied at the census tract level: a total employment threshold and the ratio of employment to the resident workers. We use this method to identify the form of the Montreal space-economy in 1996. The identification of a suitable, although imperfect, method represents a first step towards being able to more objectively and systematically examine a wide range of issues concerning metropolitan economic structure.     

THE IMPACT OF LOCAL DECENTRALIZATION ON ECONOMIC GROWTH: EVIDENCE FROM U.S. COUNTIES*

ABSTRACT We analyze the impact of fiscal decentralization on U.S. county population, employment, and real income growth. Our findings suggest that government organization matters for local economic growth, but that the impacts vary by government unit and by economic indicator. We find that single‐purpose governments per square mile have a positive impact on metropolitan population and employment growth, but no significant impact on nonmetropolitan counties. In contrast, the fragmentation of general‐purpose governments per capita has a negative impact on employment and population growth in nonmetropolitan counties. Our results suggest that local government decentralization matters differently for metropolitan and nonmetropolitan counties.     

Locational disadvantage and the spatial distribution of government expenditure on urban infrastructure and services in metropolitan Sydney (1988–2015)

Provision of public services by state governments rather than municipalities is considered an important urban governance factor preventing deeper levels of socio‐spatial inequality in Australian cities. The paper examines the spatial patterns of investment by the New South Wales state government in a wide range of services and infrastructure in metropolitan Sydney over 28 budget years from 1988/89 to 2015/16. We examined the relationship between volume and type of investment in infrastructure and services, and considered a local area's socioeconomic characteristics, distance from the central business district, and designation as a strategic site in metropolitan plans. Despite an overall redistributive approach favouring relatively disadvantaged areas, the most disadvantaged suburbs in metropolitan Sydney had significantly lower levels of investment. When funding was directed to the most disadvantaged suburbs, it was often in the form of new social housing development, reinforcing both the concentration of poverty and disadvantage in resource access. The findings suggest that this is a case of under‐investment by the state government in areas already populated by disadvantaged communities rather than a market‐driven process whereby disadvantaged households move into poorly resourced neighbourhoods.     

Spatial Mismatch and the Structure of American Metropolitan Areas, 1970–2000

Abstract.  This paper analyzes the impact of employment and population shifts in U.S. metropolitan areas from 1970 to 2000 on a spatial mismatch index to determine how metropolitan residents reacted to changes in metropolitan employment distributions. In particular, it seeks to determine whether suburban employment growth created new areas to which access is valued or whether it repelled metropolitan residents and sparked population growth in more distant suburban locations. The results show that residents tended to move away from areas gaining jobs. Black residents, on the other hand, appeared to be attracted to areas that are experiencing employment growth.     

How does transportation shape intrametropolitan growth? An answer from the Regional Express Rail

This paper analyzes the influence of transportation infrastructure, and in particular of the Regional Express Rail (RER), on employment and population growth in the Paris metropolitan area between 1968 and 2010. In order to make proper causal inference, we rely on historical instruments and control for all other transportation modes that could be complement or substitute to the RER. Our results show that proximity to an RER station increases employment and population density and, in particular, employment and population growth. The latter effects are higher in municipalities located near RER stations and close to employment (sub)centers. They are also found to be particularly strong for jobs in the service sector, for factory workers, and for highly educated population. We find no impact of the RER expansion on employment growth during the first part of the period, while the effect on population growth appears earlier but declines over time.     

Unions,Parties, and the Politics of State Government Legacy Cost

Many American state governments have made extensive promises to pay for employees’ health care and other benefits in retirement. Currently estimated at over $1 trillion in unfunded liabilities, these other postemployment benefits (OPEB) are creating a major fiscal problem for state governments. In this article, we examine the politics of OPEB. We seek to explain the variation in the generosity of OPEB across U.S. states. We argue that party competition theories do not adequately explain the outcomes we observe. Instead, we draw on the emerging Schattschneiderian approach to the politics of public policy to show that public union strength conditions a party's incentives to represent unions’ interests. In states where public sector unions are strong, unions can find their way into either party's coalition. We find that Republicans are more responsive to public union interests than either their ideological brand or prior research would suggest. It is only in states where public employees are weak that Republicans can act unilaterally and enact their preference for less government spending. To test our theories, we carry out an empirical analysis using a newly assembled data set of per capita OPEB liabilities across 49 states.     

ENTREPRENEURSHIP,INFORMATION, AND GROWTH

We examine the contribution to economic growth of entrepreneurial marketplace information within a regional endogenous growth framework. Entrepreneurs are posited to provide an input to economic growth through the information revealed by their successes and failures. We empirically identify this information source with the regional variation in establishment births and deaths. To account for the potential endogeneity caused by forward‐looking entrepreneurs, we utilize instruments based on historic mining activity. We find that the information spillover component of local establishment birth and death rates have significant positive effects on subsequent entrepreneurship and employment growth for U.S. counties and metropolitan areas.     

Multilevel Instruments for Infrastructure Investment: Evaluating State Revolving Funds for Water

In recent decades, the federal government has introduced complex, multilevel state‐operated revolving loan fund programs as an instrument for promoting state and local investment in national infrastructure priorities while limiting direct federal involvement in implementation. A federally funded state revolving fund (SRF) program combines features of a categorical matching grant to states and a subsidized loan program to localities, both of which should lower the effective price of infrastructure investment and therefore promote higher levels of infrastructure investment. However, little evidence exists to date on whether these programs stimulate new subnational spending or instead displace spending that would have occurred otherwise. We evaluate the stimulus effects of SRFs by examining the two largest such programs, the Clean Water and the Drinking Water SRF Programs. Analyzing 17 years of state‐level panel data, we find evidence that the flow of federal funds to states under the SRF programs stimulates new local investment in wastewater infrastructure, but not in drinking water infrastructure. In discussing several possible explanations for these divergent results, we argue for further research that emphasizes the intergovernmental features of this financing tool.     

Airport delays and metropolitan employment

This study provides the first empirical assessment of the impact airline delays have on urban employment. While previous works have suggested that road congestion can slow down regional development, the influence of air traffic delays on metro‐level jobs has not been examined comprehensively. The present study uses a nine‐year panel of quarterly data, which covers passenger airline traffic and delays at airports across urban areas in the United States. The panel also includes data on total and industry‐specific employment at the metropolitan‐area level. Our empirical estimates of the impact of air traffic on total employment are comparable to previously reported measures in the literature. However, we find that service‐sector employment is less sensitive to air traffic than other studies suggested. We provide new evidence confirming that delays have a negative effect on employment, a finding that is robust to various specifications of our empirical model. Our results indicate that a 10 percent increase in the number of delayed flights leads to up to a 0.15 percent decrease in total and service‐sector employment, a 0.47 percent decline in leisure and hospitality employment, and a 0.7 percent reduction in the employment level of goods‐producing jobs.     

Working women in the city and urban wage growth in the United States

Although the female labor force participation rate of women has been steadily rising in the United States, there is substantial variation across cities. Previous cross‐county studies find that gender inequality in employment reduces economic efficiency hindering growth. This result is examined in a regional context, across metropolitan areas in the United States. Throughout multiple model formulations including instrumental variables approaches, higher initial female labor force participation rates are positively related to subsequent wage growth in metropolitan areas between 1980 and 2010. Specifically, every 10 percent increase in female labor force participation rates is associated with an increase in real wages of nearly 5 percent.     

CREATIVE INDUSTRIES IN THE NETHERLANDS: STRUCTURE, DEVELOPMENT, INNOVATIVENESS AND EFFECTS ON URBAN GROWTH

Creativity is central in stimulating economic growth in cities, regions and advanced capitalist economies in general. There is, of course, no one-to-one relation of the number of firms in creative industries to economic growth. Innovation is a key mechanism explaining the relationship of creative industries with economic performance. Based on an empirical study in the Netherlands we explore the effect of creative industries on innovation, and ultimately on employment growth in cities. In the Netherlands the three specific domains of creative industries - arts, media and publishing, and creative business services - make up 9 per cent of the business population. Drawing on survey data we find that firms in creative industries are indeed relatively innovative. Yet substantial differences are found across the three domains: firms in the arts domain are clearly less innovative, most likely due to a different (less market-oriented) dominant ideology. In addition, firms in creative industries located in urban areas are more innovative than their rural counterparts. We go on to analyse how the concentration of creative industries across cities is connected with employment growth. With the exception of the metropolitan city of Amsterdam, we find no measurable spill-over effect from creative industries. The presence of the creative class (in all kinds of industries other than creative ones) appears to be a much stronger driver of employment growth than creative industries.     

The Geography of Need: Spatial Distribution of Barriers to Employment in Metropolitan Detroit

Although several studies examine the barriers to employment that limit the employability of welfare recipients, they have not analyzed how these barriers might be different for residents of central cities than for residents in surrounding suburban areas. We consider how the prevalence of barriers to employment varies by race and place in metropolitan Detroit. We find that the prevalence of mental health, substance abuse, and domestic violence barriers is higher in suburban areas, and that structural barriers are higher in the central city.     

The Location Choice of Employment‐based Immigrants among U.S. Metro Areas*

Abstract. This paper examines the initial location choice of legal employment‐based immigrants to the United States using Immigration and Naturalization Service data on individual immigrants, as well as economic, demographic, and social data to characterize the 298 metropolitan areas we define as the universal choice set. Focusing on interactions between place characteristics and immigrant characteristics, we provide multinomial logit model estimates for the location choices of about 38,000 employment‐based immigrants to the United States in 1995, focusing on the top 10 source countries. We find that, as groups, immigrants from nearly all countries are attracted to large cities with superior climates, and to cities with relatively well‐educated adults and high wages. We also find evidence that employment‐based immigrants tend to choose cities where there are relatively few immigrants of nationalities other than their own. However, when we introduce interaction terms to account for the sociodemographic characteristics of the individual immigrants, we find that the estimated effects of location destination factors can reverse as one takes account of the age, gender, marital status, and previous occupation of the immigrants.     

THE MEDIAN VOTER,VOTING, AND LOCAL GOVERNMENT EMPLOYMENT*

ABSTRACT This paper provides an explanation for the level of local government employment by developing a median voter model that allows for migration into and out of the city, a local government balanced-budget constraint, and voting behavior by public employees that reflects their role as both demanders and suppliers of local government goods. Unlike previous research, the model developed here explicitly considers voting (for the incumbent) probability density functions which furthermore need not be stationary. The main conclusions of the model are that, ceteris paribus, it is plausible that the level of local government employment varies inversely with the public employee wage demand and with the elasticity of the privately employed voting population with respect to the local tax rate but directly with the voter participation rate of public employees. Contrary to previous theoretical research, there is no determinate relationship between the level of local government employment and the voter participation rate of privately employed citizens. Inferences concerning the structure of local government are also discussed.