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Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

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  • Adam A. Millsap
  • Bradley K. Hobbs
  • Dean Stansel

Abstract

Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units†(p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions†(p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom†as the dependent variable, which provides a better measure of “total government intrusion into the economy†than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).

Suggested Citation

  • Adam A. Millsap & Bradley K. Hobbs & Dean Stansel, 2019. "Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis," Public Finance Review, , vol. 47(3), pages 493-529, May.
    • Handle: RePEc:sae:pubfin:v:47:y:2019:i:3:p:493-529
    DOI: 10.1177/1091142118817909
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    References listed on IDEAS

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    Cited by:

    1. Amitrajeet A. Batabyal & Hamid Beladi, 2023. "Can Leviathan City Governments Use Tax Policy to Attract the Creative Class?," The Review of Regional Studies, Southern Regional Science Association, vol. 53(3), pages 236-246.
    2. Callais, Justin, 2022. "Free to Grow? A Matching Methods Analysis of Economic Freedom in the United States," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 52(1), December.
    3. Ryan H Murphy, 2022. "The constitution of ambiguity: The effects of constitutions on economic freedom," Economic Affairs, Wiley Blackwell, vol. 42(2), pages 240-258, June.

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