Public Finance Review

This article examines the efficiency of subsidies for extra-family child care. It is shown that if the government is attempting to maximize the household Abstract utility function revealed by the individual family, deductibility of child care expenses will constitute the maximum efficient subsidy. Concern for equity among families will also justify deductibility. Concern for the specific well- being of children can justify higher subsidies, but these should not be directed only through day care centers, and should be available to children whether or not their parents work and use day care. Finally, the effert of subsidies on fertility is shown theoretically to be ambiguous.

This article reviews the theory of individual preferences between tax and bond finance of municipal expenditures and tests the hypotheres that cities' borrowing will vary in relation to the cities' capital expenditures, median income, bond rating, and the population level, growth, mobility, and age composition. Differences in bond ratings, population, and population growth did not prove significant, but median income, capital expenditures, and population mobility were found to have statistically significant effects on the percentage of city expenditures financed by borrowing.

The welfare cost of reducing sulfur dioxide emissions from electric power plants is computed for four policies: an emissions tax, fuel quality standards, required abatement capital use, and an abatement subsidy. The model, developed using the Harberger tax incidence methodology, includes a demand function, a production function with capital, clean fuel and dirty fuel inputs, and an emissions function with dirty fuel and abatement arguments. For the tax policy, factor demands derived from a profit function close the model, while for regulatory cases, constraints are used. The relative changes in the endogenous variables are determined as a function of the percentage emissions reduction, from which an income equivalent of the welfare change is measured using estimates of system elasticities. The welfare cost differences between the efficient and regulatory policies are high, so that greater reliance on decen tralized programs is recommended.

The Buchanan and Tullock Constitutional Choice model is examined. It is shown that it is important to distinguish between the concepts of negative and positive voter power and between cases in whichfrequent voter recontracting is and is not possible or likely to occur. Allowing for frequent voter recontracting it is further shown that positive voter power—the power to take action on behalf of the group rather than simply to prevent action from being taken— must lie, in any meaningful sense, with a majority coalition.

This article presents a method for predicting the effects of different forms of outside aid on local educational expenditure. The predictive power of the suggested method is demonstrated with an experiment using district-level data collected for the State of Virginia. The paper also tests the recent theoretical results of David Bradford and Wallace Oates who have argued (1) that in a median-voter setting matching grants are more stimulative than lump sum grants of the same amount, and (2) that under certain conditions lump sum grants are equivalent in their effects to a reduction in federal and state personal taxes. The test results are favorable.

Recent studies in Brazil find that the implementation of a major Tax Reform in 1967 led to the relative decline of state and local revenues due to excessive emphasis on tax coordination at the central level. We suggest that one problem of the municipal fiscal structure is its heavy dependence on indirect taxation. Also, the reduced productivity of local tax bases can be explained by their low tax effort, since they find it politically much less costly to obtain resources through transfers from other spheres of government than to exploit vigorously their own tax base. In order to effectively improve the financial situation of Brazilian municipalities it would be necessary to adjust the national tax code so as to allow a more suitable distribution of tax revenues between central and local governments. At the municipal level, this can be achieved through increased reliance on property taxation whose revenues finance public services that are appropriated, essentially, by local taxpayers. Greater reliance on the property tax would permit a higher degree of fiscal autonomy at the local level and, in this case, the municipalities would not be unduly exposed to fiscal disputes with higher levels of government.

This article examines the role of special districts in the efficient provision of local public services. Many public administrators, political scientists, and urban planners have long held that the proliferatian of special districts in urban areas leads to an increase in the cost ofproviding local public services and a decline in the degree to which service provision is responsive to the demands of consumer-taxpayers. In contrast, this article evaluates special districts on the basis of economic theory and deduces that they can be conducive to both production and consumption efficiency. Furthermore, it is hypothesized that restrictions on the growth of special districts diminish competition in the provision of local public services and lead to rising costs. This hypothesis is tested using data from California and Oregon, two states which have severely restricted the growth of special districts. It is found that, ceteris paribus, such restrictions are likely to have increased the cost of providing local public services.