ANALYZING INTERJURISDICTIONAL COMPETITION BETWEEN U.S. STATES

Abstract

This thesis looks at the phenomenon of “Interjurisdictional Competition” which is the economic competition of equal sub-national governments. The research focuses on the United States as there have been clear efforts by state and local politicians to engage in this sort of competition. This paper utilizes ideas from existing literature on interjurisdictional competition to formulate a way of measuring if it has been successful. This way of measurement is called the “Elasticity Theory”, and it proposes that elasticity can be used to measure how the additional dollar spent on government services impacts private sector spending. Sub-national governments that have an “ideal” elasticity will generally have higher GDPs per capita according to theory. After applying the theory to existing data, it was found that all sub-national governments are failing to properly fund their basic functions. This could be due to either misallocation of resources or failure to raise sufficient tax revenue, but it is clear that cutting tax revenue is not the optimal way for sub-national governments to boost their economies. Rather, sub-national governments need to invest more in social services in order to better support the private sector.