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The provision of infrastructure: benefit–cost criteria for optimizing local governments

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  • T. Daniel Woodbury

    (Young Harris College)

Abstract

This paper models the provision of a local public good that is simultaneously utilized as a public consumption good and a public intermediate good. Since the public good enters both utility and production functions, it is considered a “generalized public good.” This is done to model the provision of infrastructure by sub-federal governments, which is financed with taxes on local residents. Households are mobile in the model, and the theoretical analysis provides a benefit–cost rule for public good provision by a rent-maximizing local government. Illustrative calculations of the marginal cost of public funds are provided, and they show a wide range of values matching previous estimates of the marginal productivity of infrastructure. The impact of intergovernmental transfers on the provision of infrastructure by rent-maximizing local governments is presented.

Suggested Citation

  • T. Daniel Woodbury, 2020. "The provision of infrastructure: benefit–cost criteria for optimizing local governments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 552-574, June.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:3:d:10.1007_s10797-019-09577-2
    DOI: 10.1007/s10797-019-09577-2
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    More about this item

    Keywords

    Public goods; Public inputs; Infrastructure; Cost–benefit analysis; Fiscal federalism;
    All these keywords.

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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