Week Five: Understanding the Competitive Pressures Within a Federal System

Child Care Spending FY97# Kids<5 in Poverty California$856m680,000 Texas$180m420,000 Connecticut$101m26,000 Wisconsin$87m53,000 Oregon$85m46,000 Louisiana$61m93,000 Maryland$55m58,000

Factors Affecting the Assignment of Policy Responsibilities Externalities Externalities Information Information Costs of Decision-Making Costs of Decision-Making Government Capabilities Government Capabilities Interjurisdictional Competition Interjurisdictional Competition

Externalities and the Assignment of Policy Responsibilities Definition: A cost or benefit that an individual, organization, or government incurs due to the action of another individual, organization, or government. Definition: A cost or benefit that an individual, organization, or government incurs due to the action of another individual, organization, or government. Nonrivalrous: Does consumption by one affect consumption of others? Nonrivalrous: Does consumption by one affect consumption of others? Nonexcludable: Can someone benefit without contributing? Nonexcludable: Can someone benefit without contributing? Export of Undesirables: Can you transfer undesirable costs to other jurisdictions? Export of Undesirables: Can you transfer undesirable costs to other jurisdictions? Implication for Gov’t: When externalities are present, we would expect greater national activity Implication for Gov’t: When externalities are present, we would expect greater national activity

Information and the Assignment of Policy Responsibilities Importance of Information: Policy-making and implementation requires information. Importance of Information: Policy-making and implementation requires information. Information as Power: Who has the most information about costs and benefits? Information as Power: Who has the most information about costs and benefits? Information Is Not Free: Information Is Not Free: What are the costs of gathering and disseminating information about a particular program? What are the costs of gathering and disseminating information about a particular program? What are the costs of monitoring? What are the costs of monitoring? Implication for Gov’t: Level at which information is most costly will be less likely to act or garner discretion. Implication for Gov’t: Level at which information is most costly will be less likely to act or garner discretion.

Costs of Decision-making and the Assignment of Policy Responsibilities Costs of decision-making: Political costs (or benefits) associated with advocating governmental activity in a given area. Costs of decision-making: Political costs (or benefits) associated with advocating governmental activity in a given area. Factors shaping considerations of “costs”: Political party; re-election considerations; coalition-building; credit claiming; interest/advocacy groups Factors shaping considerations of “costs”: Political party; re-election considerations; coalition-building; credit claiming; interest/advocacy groups Implication for Gov’t: Where the “costs” of decision- making are high, likelihood of acting are low. Implication for Gov’t: Where the “costs” of decision- making are high, likelihood of acting are low.

Gov’t Capacity and the Assignment of Policy Responsibilities Which level of government has the requisite resources? Which level of government has the requisite resources? Which level of government has the administrative capacity to Act? Which level of government has the administrative capacity to Act? Which level of government can ensure equity, consistency, and predictability? Which level of government can ensure equity, consistency, and predictability? Implication for Gov’t: Policy responsibility tends to be assigned to level with necessary capacity – ties favor subnational government often. Implication for Gov’t: Policy responsibility tends to be assigned to level with necessary capacity – ties favor subnational government often.

Interjurisdictional Competition and the Assignment of Policy Responsibilities Competition is embedded within a federal system Competition is embedded within a federal system Impact of competition: Is competition in a given level positive or negative? Impact of competition: Is competition in a given level positive or negative? Indicators of competition: tax exporting; tax competition; over-taxation of activities with spillovers; underprovision of services Indicators of competition: tax exporting; tax competition; over-taxation of activities with spillovers; underprovision of services Implication for Gov’t: If competitive pressures underprovide services below an acceptable level, authority will be given to the national government. Implication for Gov’t: If competitive pressures underprovide services below an acceptable level, authority will be given to the national government.

The Political-Economy of Subnational Government Decision-making = Simple cost-benefit calculation between redistributive and development programs Decision-making = Simple cost-benefit calculation between redistributive and development programs Act when B > C – what does this mean for expected policy outcomes? Act when B > C – what does this mean for expected policy outcomes? What is the role of politics? What is the role of politics? Assumptions of Model: Assumptions of Model: Actors can make cost-benefit calculations Actors can make cost-benefit calculations Mobility Mobility Citizens respond to shifts in governmental programs Citizens respond to shifts in governmental programs Development policy is consensus-oriented Development policy is consensus-oriented

Two Key Dimensions to Political- Economic Approach Mobility Mobility Seek to match mix of residents to programs and revenue needs Seek to match mix of residents to programs and revenue needs Sorting process occurs – homogeneity within jurisdictions Sorting process occurs – homogeneity within jurisdictions Desirability Desirability Attract desirable groups/residents Attract desirable groups/residents Exploit, ignore, or reflect undesirable groups/residents Exploit, ignore, or reflect undesirable groups/residents

Mobility and Desirability: Donahue’s Matrix MobileImmobile DesirableATTRACTBusinessEXPLOIT Permanent Capital UndesirableREPEL Welfare Recipients NEGLECTMiddle-class

Discussion Questions: What are the implications of competitive pressures and political-economic models for policy-making at all levels of government? What are the implications of competitive pressures and political-economic models for policy-making at all levels of government? What factors will mitigate or mute competitive pressures? What factors will mitigate or mute competitive pressures? What will exacerbate competitive pressures? What will exacerbate competitive pressures? Why does the federal government tolerate competition between subnational jurisdictions? Why does the federal government tolerate competition between subnational jurisdictions? What is the “price of federalism”? What is the “price of federalism”? What is the difference between competing, learning, and adapting? What is the difference between competing, learning, and adapting?

Readings for Next Time: Chapters One through Three, Implementation, Pressman and Wildavsky Chapters One, Two, Four, and Five, New Towns In-Town, Derthick Two Page Memo on paper topic due next week