The effects of Home Rule and Dillon's Rule on local government behavior (John F. Dillon)

Economists have applied the neoclassical demand theory to local government fiscal behavior. They, however, tended to neglect institutional aspects of government structure and interrelationships among public sector entities. Nonetheless, a growing body of literature indicates that these institutional factors can be studied within the public choice context. In light of the institutional interactions in local public expenditure, this dissertation seeks to answer how Home Rule and Dillon's Rule affect the fiscal behavior of local governments.; There are several hypotheses pertaining to how Home Rule can affect local fiscal behavior. Proponents of home rule envision the pressures of interjurisdiction competition or the threat of residential migrations as sufficient to ensure the dominance of the median voter's position in local government and achieve economic efficiency.; In contrast, under the Leviathan hypothesis of Brennan and Buchanan (1980), Dillon's Rule efficiently constrains county governments, keeping them from unduly expanding spending beyond constituents' demands for public services. In this view, Dillon's Rule is the type of constitutional constraint that is needed to harness the local Leviathan and enhance economic efficiency.; In order to evaluate these conflicting views, this dissertation integrates the related literatures on the median voter model, the fiscal illusion, the median voter hypothesis, and the theory of overlapping jurisdictions with this new perspective of Home Rule and local government fiscal behavior.; The Cox specification test and the fiscal illusion estimates reveal that strong home rule meets the community's demand but also allows counties to more thoroughly exploit voter fiscal illusion, thereby expanding county spending beyond the level that would be most preferred by voters. The nonparametric test shows the strong evidence that counties with Home Rule powers are more likely to violate the median voter hypothesis. Applying the Tumbull-Djoundourian (1993) theory of overlapping jurisdictions, Home Rule increases the vertical competition in the overlapping jurisdictions.; The main conclusion of this study is that Home Rule cannot be considered in isolation. Its effects on local government performance in terms of meeting voter's demands, increasing fiscal illusion, attaining economic efficiency, and promoting vertical competition depends upon internal management structures and external competitive constraints.