Fiscal Federalism and Spatial Interactions among Governments

This dissertation examines multiple state and local expenditure categories in the United States to expand understanding of fiscal federalism and spatial interactions among governments. First, the author investigates the relationship between police expenditures and crime rates from a spatial perspective. Both police expenditures and crime rates in one state are found to exhibit a similar pattern to that in neighboring states. Spatial correlation is also detected between police expenditures and crime rates. As police of neighbors in fact deter crime at home, there are positive externalities present among the states. Second, the author conducts new tests on the Leviathan hypothesis, i.e., more competition, smaller government. While cost efficiency is used in place of government size to capture the idea that fiscal decentralization reduces wasteful expenditures, spatial interaction is taken as another measure for decentralization. The hypothesis is supported by some evidence from total, police, highway, and welfare expenditures