| This dissertation examines the effect of interjurisdictional competition on economic performance in U.S. metropolitan areas. It addresses the question: does it matter whether metro areas have one large, monopolistic local government or many small, competitive local governments? Market failure theory implies that more competition is bad for economic growth. Public choice theory suggests the opposite. It holds that interjurisdictional competition can enhance economic performance, in part by acting as a constraint on the monopoly power of government. Using a new, expanded data set, this dissertation provides the first empirical test of these hypotheses that examines all U.S. metropolitan areas. The results are consistent with the view that a system of many, small local governments restrains the growth of government spending and produces superior metro area economic performance. The evidence also indicates a negative correlation between government spending growth and economic growth in metro areas. This analysis has direct relevance to contemporary policy debates. For example, sizable communities in America's two largest metropolitan areas have recently tried to detach from their central city and establish their own independent jurisdictions (Staten Island in New York and San Fernando Valley in Los Angeles). In contrast, there are ongoing efforts in numerous metro areas—including Baltimore, MD, and Norfolk, VA—to follow the examples of Indianapolis, IN, Nashville, TN, Jacksonville, FL, and others by implementing some form of consolidated local government. |
