Creative Politics: Taxes and Public Goods in a Federal System

2. Federalism, Public Goods, and Taxes

Chapter 2 Federalism, Public Goods, and Taxes One element of modern representation consists of representatives responding to their constituents’ preferences for goods and services (Jewell 1982; Pitkin 1967). Responding to constituents’ preferences is at best an uncertain undertaking. Citizens may not communicate their preferences well. There may be competing preferences from citizens within a legislative district. And citizens may be uncertain about their preferences or hold contradictory preferences (Jackson and Kingdon 1992). Pitkin (1967) has argued that representation is a process and posits an ongoing relationship between the representative and the represented. Representation involves responding to constituent demands for goods and services, not just in the narrow sense of pork-barrel projects but also in the broader sense of providing goods and services in accord with citizens’ preferences and having governments impose tax systems citizens accept. An essential component of satisfying constituent preferences for government goods and services involves attaching appropriate pricing systems—taxes—to those services (see Levi 1987). Krehbiel (1991) and Jewell (1982) offer insight into how legislators use information to shape their decisions about how to extract tax revenues and allocate bene‹ts. Both scholars contend that legislators are more concerned with a broad-based allocation of tax burdens and resources than with particular bene‹ts for their districts. Jewell examines the positions of individual legislators and does not examine cases in which legislators must collectively decide on an alternative. The second unit of analysis in this work, the collective decisions of the legislature, enables the extension of Jewell’s work on state legislators to understand how individual positions translate into collective policy outcomes. Of course, legislators respond to more than simple calculations about citizens’ bene‹t/tax ratios. They must consider how policy changes affect 11 various elements of the constituencies and the extent to which policy changes may mobilize support or opposition among interest groups, which can in turn offer substantial ‹nancial support for of‹ceholders (Denzau and Munger 1986). Thus, calculations about service bene‹ts and tax costs become two components in individual legislators’ assessments of policy alternatives and the amount of political capital to commit beyond voting for or against a speci‹c proposal. Federalism and public goods also become components in legislators’ policy decisions. If a legislature can shift costs onto another level of government or provide bene‹ts to a broader range of constituents without increasing their costs, then representatives may seek new marginal revenues in response to intergovernmental programs and to the nature of public goods. The federalism–public goods model of representatives’ responsiveness complements other models of state policy development (Dye 1990; Erikson , Wright, and McIver 1993) by re›ecting institutional political processes in the states. Legislators consider various issues, arrive at positions , and work toward policy outcomes in and around their legislative chambers. This model focuses on decision makers and collective policy decisions in federal political institutions rather than on the aggregate data for national and subnational jurisdictions. Examining the legislatures and legislative policy alternatives at the state level opens the black box of subnational institutions—they become an understandable component in the political process, and it is possible to unravel what happens and why. As a metric for understanding resource allocations in federal systems, I employ the concept of a bene‹t/tax ratio (Peterson 1981). For an individual citizen, the bene‹t/tax ratio is the willingness to pay for a bundle of government goods and services divided by that individual’s tax burden. The numerators and denominators can be aggregated across citizens to estimate a bene‹t/tax ratio for any community, legislative district, state, or nation. Estimating bene‹t/tax ratios is at best an uncertain enterprise because citizens have incentives to understate their willingness to pay for public goods (Samuelson 1954; Tiebout 1956). It is possible, however, to discuss with some certainty what happens to bene‹t/tax ratios when legislatures enact policy changes. Because state legislators do not create an entirely new set of goods and services every session, attention can be focused on how policy changes affect various constituencies. When legislators increase tax rates only to maintain services, one can conclude that 12 Creative Politics bene‹t/tax ratios have decreased. However, selecting certain citizens to bear additional taxes while maintaining services may maintain or even increase constituents’ bene‹t/tax ratios. These changes in values can be estimated for individual citizens, for a district or group of legislative...