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State and Local Government Utility Maximization According to Garp

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  • Larry DeBoer

    (Purdue University)

Abstract

Many recent state and local expenditure determinant studies have modeled public choice as the result of the constrained maximization of a utility function. This model has been tested using particular utility functions, but rejection of constrained maximization under such a test may imply only the inconsistency of the data with the chosen functional form. A nonparametric test, based on the generalized axiom of revealed preference (GARP), exists that shows whether a price-quantity data set may be rationalized by the constrained maximization of any utility function. This test is applied to various state and local government cross-section and time series data sets. It appears that the constrained maximization model can explain the bulk of public price-quantity observations in each data set tested. The results tentatively suggest that time series data are more likely to be consistent with utility maximization than are cross-section data.

Suggested Citation

  • Larry DeBoer, 1986. "State and Local Government Utility Maximization According to Garp," Public Finance Review, , vol. 14(1), pages 87-99, January.
    • Handle: RePEc:sae:pubfin:v:14:y:1986:i:1:p:87-99
    DOI: 10.1177/109114218601400105
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    References listed on IDEAS

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    1. Wales, Terence J., 1977. "On the flexibility of flexible functional forms : An empirical approach," Journal of Econometrics, Elsevier, vol. 5(2), pages 183-193, March.
    2. Deacon, Robert T, 1978. "A Demand Model for the Local Public Sector," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 184-192, May.
    3. W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 419-425.
    4. Hal R. Varian, 1983. "Non-parametric Tests of Consumer Behaviour," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(1), pages 99-110.
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    Cited by:

    1. Geoffrey K. Turnbull & Michael T. Tasto, 2008. "Independent Cities and Counties in Virginia: Substitute Jurisdictions?," Urban Studies, Urban Studies Journal Limited, vol. 45(1), pages 53-66, January.
    2. Turnbull, Geoffrey K., 1997. "Revealed Preference and Location Choice," Journal of Urban Economics, Elsevier, vol. 41(3), pages 358-376, May.
    3. Janet G. Stotsky, 1990. "The Effect of the Elimination of Sales Tax Deductibility on State Fiscal Decisions," Public Finance Review, , vol. 18(1), pages 25-46, January.

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