If this book were a stock, I would buy. It will be widely cited and much used. It has a simple policy message, identifying a “big government” problem that can be alleviated by some straightforward legislative and institutional reforms. The problem is rooted in the prevalence in the US West and Midwest of “special purpose jurisdictions” that have the right to finance themselves through charges on local property and sales taxes. Special purpose jurisdictions are local government districts that are responsible for a single function—most often education, but also libraries, health, hospitals, public welfare, highways, air transport, water transport, parking, drainage, flood control, soil and water conservation, irrigation, parks and recreation, housing, sewerage, solid waste management, water supply, transit systems, power utilities, cemeteries, and industrial development. The boundaries of special purpose jurisdictions overlap, often in quite confusing ways, with one another and with the boundaries of the more familiar general-purpose (“territorial”) local government units—towns, townships, municipalities, and counties.
From a panel data set covering the whole of the United States for a period of 30 years, Christopher Berry extracts a great deal of evidence that the presence of special purpose jurisdictions inflates the overall tax bill, and some evidence that it decreases the efficiency with which the money is spent. One of the remedies is legislation to raise the barriers to the creation of new special purpose jurisdictions. Another is to retime the elections to their boards, such that they are held simultaneously with one another and with elections for general-purpose local government units. This expectation that tinkering with election dates might be so consequential stems directly from the logic of Berry's theory of the politics of special purpose jurisdictions.
The core of that theory is Berry's intuition that “removing a policy issue from the purview of general-purpose government and placing it under the jurisdiction of a single-function district enables the interest groups concerned with the issue to increase their influence over it” (p. 51). Stereotypically, teachers vote to take education away from the purview of county governments by creating single-function education districts. They arrange to have the elections for the boards of those districts on days when no other elections are held. In consequence, voting is dominated by teachers. Boards are unduly concerned to advance teachers' interests. Because the boards have considerable authority to fund education from charges on local property and sales taxes, they have both incentive and opportunity to spend money in ways that will advantage teachers in relation to parents, citizens, taxpayers, and the collective interest. It is then plausible that enabling voters to elect school boards at the same moment that they elect sanitation and highways boards and town and county governments might dilute the influence of special interests.
Berry provides us with no direct evidence on this particular point. However, it is very likely that other scholars will pursue the many leads and arguments that he has provided, partly because the issues are of practical importance, but also because his book is a model of clear, rigorous, and objective research and exposition. It is a treasure trove for colleagues teaching graduate classes in public finance, urban studies, and political economy. It presents us with some fine summaries and critiques of relevant literatures, formal models of political processes, considerable quantitative analysis, and a series of empirical propositions that cry out for further investigation.
The author convinces me that, relative to general-purpose local government units, special purpose jurisdictions increase public spending. I am less convinced that the consequences are as bad as is implied by the marketing blurbs on the cover, crafted as they are to appeal to “small government” sentiments. His evidence that special purpose jurisdictions spend money less efficiently than general-purpose governments relates mostly to one small corner of the governance business: public libraries. Is it unambiguously bad for democracy that special purpose jurisdictions provide organizational niches for a variety of special interest groups? One might see merit in this from a pluralist tradition, especially in contexts in which elections for general-purpose governments are dominated by highly partisan political parties. And might there not be useful policy conclusions from the set of Berry's findings most likely to be ignored: that the inflationary effects of special purpose jurisdictions on the level of public spending are entirely negated by the local presence of strong political parties able to integrate the interests of different sections of the electorate?
The United States is the only country in which special purpose jurisdictions are prevalent and numerous. The further work and debate to which this book will give rise will continue to be located within the study of American politics. There is, however, also a strong potential link to a set of issues that is underexplored in comparative politics, both theoretically and practically: the character and consequences of (horizontal and vertical) fiscal competition between (national and subnational) political jurisdictions.
In presenting his work, Berry appropriately targets Charles Tiebout's influential model of competitive local government (“A Pure Theory of Local Government Expenditures,” Journal of Political Economy 64 [1956]: 416–24). The essence of Tiebout's model is that (territorial) local governments compete with one another for taxpayer residents, offering tax regimes that entice dissatisfied taxpayers from adjacent jurisdictions. Elegant in its simplicity, this model assured believers that the institution of territorial local governments with taxing powers contained in-built restraints on public spending and public spending inefficiency: Townships that taxed too much or used their income inefficiently would be forced into corrections as their residents moved to the township next door. Berry's dispute with Tiebout is more about empirics than about theory: Behavioral assumptions that are plausible in a context of nonoverlapping, general–purpose, territorial local governments do not apply when there are overlapping special purpose jurisdictions and when the typical local property tax bill is destined to finance not one but eight or more local government entities. However, in taking on Tiebout, Berry is implicitly raising questions about the different forms of fiscal competition between government jurisdictions, as well as their consequences. He does not seize the opportunity to explore fiscal competition more generally. Were he to do so, he might begin to make connections between literatures that currently appear distinct.
In the Tiebout model, interjurisdictional fiscal competition revolves around the ways in which governments engage with resident taxpayers. Berry's model is more complex: Jurisdictions engage with taxpayer voters in simultaneous pursuit of votes and (residential) tax revenues. He is justified in claiming that, relative to Tiebout, he is “putting politics back into local political economy” (pp. 19–22). But is he putting in enough politics? He reminds us of a different model of interjurisdictional fiscal competition (pp. 185–6)—competition for mobile capital investment through a reduction in capital taxes—but does not pursue its implications. The literature he refers to happens to deal with subnational governments in the United States (e.g., Wallace Oates, Fiscal Federalism, 1972), but the same dynamics apply at the international level. In these cases, competition is driven by the ways in which governments engage with taxpayer investors. By competing for mobile investment through a reduction in tax rates, governments may gouge revenue from one another, and drive overall public revenues down to suboptimal levels.
Yet another form of (international and subnational) fiscal competition is now receiving increasing attention: that between jurisdictions vying for the business of assisting in tax avoidance and tax evasion by making it easy for individuals and enterprises formally to locate their business transactions and assets in what are popularly known as tax havens, with high levels of secrecy, low levels of taxation, and low levels of cooperation with the legal and tax authorities of competing jurisdictions. In these cases, governments engage neither with voters nor with actual investors but with tax evaders (Ronen Palan, Richard Murphy, and Christian Chavagneux, Tax Havens: How Globalization Really Works, 2010).
As these examples illustrate, fiscal competition is a rich and underexplored field. Berry's theorizing around small local jurisdictions in the United States has a great deal to offer those interested in tax havens at the global level—and vice versa.
