A bureaucratic model of local government tax and expenditure decisions.

A model of incremental decision-making in local government is presented as an extension of that developed by Davis et al. (1966) for US Congressional appropriation. This is then combined with joint supply and demand equations for local taxes and expenditure. An explicit Stone-Geary utility function deriving from the bureaucratic model is then introduced and estimation equations derived when these functions are maximized subject to the supply and demand equations as constraints. Empirical results are then given for local authorities in England and Wales from 1974 to 1960. These results confirm a very important role for the bureaucratic component within the overall tax-expenditure model.
An extensive literature has now been developed for models of local government decisions on expenditure and tax levels. The approach developed in this paper views decisions on local taxes and expenditures as essentially bureaucratic decisions. Hence, it starts out by developing, in section II, a model of the bureaucratic decision-making process. This model is an extension of the incrementalist model of Davis et al. (1966), developed for describing appropriations in the US Congressional budget. Local government decisions are not entirely incremental, however. They are subject to variable local demand and to constraints on the supply of revenue deriving from the size of the local tax base and intergovernmental transfers. Hence, demand and supply equations are also introduced to be combined with the bureaucratic model in section III. In addition, it is hypothesized that local government decisions are informed by the desire to maximize some overall utility function. It is shown that the incremental bureaucratic model leads naturally to defining a Stone-Geary structure for the explicit form of this utility function. This is also developed in section III of the paper. The resulting model is then estimated, in section IV, using the local authorities in England and Wales. [ABSTRACT FROM AUTHOR]