| Chapter 2: | Government Consolidation |
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- 2. If citizens are not satisfied with the government's response, they lose confidence in the structure of the local government and support for consolidation develops, usually bolstered by the support of civic organizations and the local media.
- 3. Finally, the initial support for consolidation is strengthened by accelerator events, such as a scandal or the loss of a leader. Ultimately, the effort coalesces in the passage of the consolidation referendum.
Two prevailing points of view dominate the consolidation literature. On one hand, proponents of consolidation argue that metropolitan areas with many fragmented local governments experience service duplication, diseconomies of scale, and other inefficiencies which increase the costs of government. In addition, consolidation increases the prospects for regional cooperation in economic development.
On the other hand, opponents suggest that consolidation limits competition between smaller units of government. Such competition provides more choices for households deciding where to live and businesses deciding where to locate or expand, and it results in more efficient levels of service provision—as people and businesses “vote with their feet” in the face of poor service quality or high taxes.7 The idea that citizens and businesses vote with their feet—a concept often referred to as “Tiebout sorting”—has received much empirical support. It is commonly known that households with children choose to live in the best school districts that they can afford. House prices in neighborhoods with good amenities, such as parks and schools, are higher than those of similar houses elsewhere, indicating a higher demand for houses in such neighborhoods.
Numerous survey articles, including those by Wasylenko (1997), Ladd (1998), Newman and Sullivan (1988), and Bartik (1991), have examined the role taxes and service quality play in businesses’ location and expansion decisions. Some of the conclusions of this literature are:
- 1. Taxes have a small, statistically significant effect on the interregional location decisions of firms.