Government Form and Performance: Fiscal Illusion and Administrative Ability in U.S. Counties

Abstract

Key differences in local government organizational form lie in separation of powers versus unified powers and elected versus professional chief executive officers (CEOs). This paper studies how these features lead to differences in fiscal illusion and production cost. Evidence from U.S. counties indicates that there is less fiscal illusion under separation of powers, which by itself reduces spending. Separation of powers, however, leads to greater overall spending when compared with unified governments. The inelastic public demand, therefore, implies that separation of powers leads to services being provided at greater cost than under governments with unified powers. Similar conclusions hold for professional relative to elected CEOs.