Voting And Local Public Goods:

A casual observer of contemporary affairs could easily believe that the federal (central) government overwhelms lower levels of government (such as state government and local governments like district administration, panchayets etc.) in terms of its economic impact. In a sense this is probably true. However, for many persons, the goods and services provided by sub-national levels of government (like district administration, sub-divisional body, municipal corporations and panchayets etc.) are more important to their day-to-day lives than the goods and services provided by the federal (central) government. Here lies the importance of the federal system of provisioning (i.e. the dual system of provisioning, consisting of central as well as sub-national bodies).

One important characteristic of the federal system is the great diversity of tax and expenditure policies employed by the sub-national states and localities. Not all sub- national governments use the same taxes, apply them at the same rates, or spend the same amounts on the various programmes; they are independent units making their own individual tax and expenditure decisions, and these decisions can and do vary considerably. Now the question is how are these decisions made?

In this unit we focus on some fundamental questions pertaining to the fiscal activities of local authorities in the context of provisioning of local public goods. We discuss, what gains, if any, are derived from fiscal decision-making at a local level? How to operatioanalize the decentralized decision-making ensuring optimum allocation of economic resources? What roles can the individual decision-making play in  this context? How do the individual reactions shape the policies of local governments?