Working Paper by Dennis Jansen and Liqun Liu Published in the Journal of Economics
Aug 04, 2020
Summary: The working paper, “Inter-Jurisdiction Migration and the Fiscal Policies of Local Governments" by PERC’s Director Dennis Jansen, PERC Research Scientist Liqun Liu, along with coauthor Darong Dai, has been published by the Journal of Economics.
Local government debt, and the repayment of that debt, is tied to a geographic and political jurisdiction. Residents of that particular jurisdiction are responsible for voting to incur that debt, and responsible for paying the taxes that allow payment of that debt. The possibility of migrating to another political jurisdiction later in life, and as a result, not being responsible for debt repayment in one's original jurisdiction, provides voters with an incentive to incur excessive debt that they can avoid by migrating. This paper first analyzes a fiscal-policy game between two jurisdictions connected by mutual migration and finds that as the mutual migration intensifies, both jurisdictions choose to incur more debt used to finance more public consumption, less public investment, and more total spending.
This results in an inferior outcome for society. The authors also find that a constitutional or other enforceable restriction disallowing debt-finance of public consumption spending can restore a first-best solution in this situation.
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