Local Public Finance

Abstract

In this essay, we survey the literature on local public finance. The first part deals with the normative theory of local public finance, starting from the question when it is beneficial to decentralize public services. We then analyze the functioning of a system of competitive jurisdictions in the spirit of Tiebout. The final part of the essay deals with constitutional design. In particular, we ask when and how local governments have to be regulated in order to prevent destructive competition or contain monopoly power, and we describe which institutions might perform these tasks.