Explaining variations in spending levels between local authorities: an economic analysis

Citation

King DN (2008) Explaining variations in spending levels between local authorities: an economic analysis. Stirling Economics Discussion Paper, 2008-29.

Abstract
This paper puts forward and tests a simple model of how the median voter in a local authority (LA) may determine the level of its expenditure in relation to its needs, to see what lessons may be learned. For Scottish LAs, variations in spending in relation to need are very small, but the model explains these variations well; it also suggests that the Scottish National Party leads to the lowest spending levels, and that the island LAs receive over-generous needs allowances. For England, the model explains variations in service levels very well for LAs with relatively low spending but very poorly for LAs with relatively high spending: this suggests that the latter are prevented by capping from providing the high service levels that their median voters want. Also, it is found that among underspenders, increased efficiency reduces spending. Finally, no evidence was found to suggest that the 2002 downward revisions in the relative spending needs of the English shire counties were inappropriate.

Keywords
Local authority spending; Overspending; Tax capping; Tax price; Value for money

JEL codes

• H71: State and Local Taxation, Subsidies, and Revenue
• H72: State and Local Budget and Expenditures
• H73: State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects

People

Professor David King

Emeritus Professor, Economics