Econ 337 #5 - Organization of sub-national government and...

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Unformatted text preview: Organization of sub-national government and fiscal federalism Ch. 6 Oates (1972), Ch1-2 Why centralized? Why decentralized? 1.Go over a few public goods and services. 2.Discuss which ones should be provided by a central government and which ones should be provided by decentralized governments? 3.Whats the criterion you use? And maybe a museum? $14 million fishing museum in Perry, Georgia. Georgia faces $1.6 million a year in bond payments and operating costs. The state must make bond payments for the museum for the next 16 years. Meanwhile, cuts are being proposed to the states college scholarship program, health care and the prison system. With a large state deficit looming, Go Fish has become a cautionary tale about the long-term ramifications of prerecession decisions. even supporters concede that the museum would never have gotten financed in 2007 if the legislature knew where the economy was headed. If it draws enough fishing tourists Location: In a 13,000-person town more than 100 miles from both Atlanta and the Atlantic Coast. Centralized vs. decentralized government Centralized vs. decentralized government Why centralized? Why decentralized? A few factors: 1. Variations in demand 2. Mobility 3. Spatial externalities (spillover) 4. Economies of scale 5. Administration and compliance costs Economies of scale In standard microeconomics: Average cost decreases as the quantity of output rises. AC=TC/Q Here, it refers to: A decrease in cost per person for a given amount of service as the population served increases. Remarks Economies of scale Centralization is more desirable?? 1.Centralization is the only way to go? Contracting work Joint purchasing agreements 1.Economies may exist for very small service populations but quickly be exhausted. Administration costs include: The compensation paid to elected and appointed officials and staffs; Buildings, supplies, utilities Compliance costs include: Costs associated with citizens becoming...
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Econ 337 #5 - Organization of sub-national government and...

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