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Do you think that smaller communities in the real world do have different levels and types of public expenditures? Can you give a specific example?

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From the wording of your question, I assume that you are asking about Charles Tiebout’s model of how competition determines levels of taxation and government services in local governments.  This model was proposed in his 1956 article “A Pure Theory of Local Expenditures.”  I would argue that there is a degree to which smaller communities do differ from one another.  However, I would also argue that there are not as many differences as Tiebout’s theory might imply.

As examples of both of my statements, I will use public schools.  There are clearly differences between the public schools in small communities.  There are typically richer and poorer suburbs around a given city.  The poorer suburbs choose to spend less money on their schools while the richer suburbs choose to spend more and to have more lavishly equipped schools.  This is typically accomplished through such things as school bonds that are voted on by the residents of the communities.  This would appear to be a good example of the differences in public expenditures that Tiebout predicts will appear.

On the other hand, public schools also show that Tiebout’s model is not as realistic as we might think.  If it were realistic, there would surely be some communities that did not tax their residents to provide public schools.  Most people who have no children of school age would surely prefer to live in a community that does not tax them to provide schools for others’ children.  However, we do not see any such communities in the real world.  This implies that Tiebout’s model does not truly work.

So, I would say that there are examples of ways in which local governments have different levels of taxation and expenditures.  However, the differences are not as great as Tiebout’s model would suggest.  There is not a huge range of different options open to consumer-voters.

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