Prof. William Hoyt

Evaluating the Welfare Implications of Decentralized Policies in a Federal System

While the benefits of decentralized policies, specifically, the sorting of individuals by their preferences for public goods à la Tiebout (1956) are well known, there are also costs of decentralization as well. Among these are inefficiencies generated by fiscal competition and spillovers. A voluminous literature on local government policies, recently reviewed in Agrawal, Hoyt, and Wilson (2022), has examined whether and when decentralization results in underprovision or overprovision of public services, what conditions might exacerbate these inefficiencies, and possibly policy interventions by higher-level governments. Missing from this literature are efforts to quantify both the welfare costs that are associated with decentralized policies and the magnitude of central government corrective interventions. In the paper, “A New Approach to Evaluating the Welfare Effects of Decentralized Policies, William Hoyt, along with coauthors David Agrawal and Tidiane Ly develop a metric to quantify the spillovers generated from decentralized policies, the marginal corrective transfer (MCT). The MCT is the wedge between the marginal value of public funds (MVPF) of the locality enacting the policy and the MVPF for the federation based on a rigorous framework for delineating local and social benefits and costs then applied to examples of property tax cuts, K-12 and higher education, and bidding-for-firms.

Mr. Hoyt’s fields of interest are open-economy public economics and urban economics. While visiting CESifo, he will deliver three CES Lectures entitled “Understanding and Evaluating Decentralized Government Policies within a Federal System” and he will pursue research on quantifying the welfare consequences of local government policies.

Wiliam Hoyt is the Bryan Endowed Professor of Public Finance at the Martin School of Public Policy and Administration and Professor of Economics at the University of Kentucky. He is the former co-editor of the Journal of Benefit-Cost Analysis and is a Fellow of the CESifo Research Network. His doctorate is from the University of Wisconsin.