The Economic Impact of Local Government

Abstract

This dissertation studies the relationship between local governments and their local economic system. It is motivated by the increased transfer of power from central and regional government to local governments. The economic effects of this increase in local governmental power remain highly debated and the empirical evidence is still mixed. This dissertation adds new insights to the debate on the economic impacts of local governments by taking a detailed empirical approach. The main research question is: To what extent, and in what ways, do local governments contribute to local economic development?Answers to the research question are provided through four chapters, which seek to empirically examine, in great and novel detail, how the structure and fiscal composition of local governments affect local economic performance.The empirical analyses start by entering the debate on decentralization, shedding a light on the economic effects of the increased transfer of power to local governments through detailed analyses. It makes the argument that the economic effects of decentralization are contingent on the quality of local governments, as well as the opposite argument, that the economic effects of the quality of local government is contingent on the degree of decentralization. Empirical analyses on European cities show that cities with high local autonomy, high quality of government, and low horizontal fragmentation are best performing. Furthermore, empirical analyses show that organizational autonomy, policy scope, discretion and vertical autonomy are most important for generating positive economic effects.