Studies in federalism have traditionally examined whether certain goods or services are best provided at the local, state, or federal levels of government. Inefficiencies in local provision of goods and services can be addressed in a federalist system by shifting either the production or financing of the local public good to higher levels of government . A much less discussed alternative is the imposition of mandates by higher levels of government on subordinate units. Mandates are quantity constraints on the subordinate units of government that require an increase or decrease in the provision of the good depending on the direction of the spillover. This research project develops a political economy model of federalism that focuses on mandates. For empirical purposes, the model emphasizes local and state government relationships but it could be easily extended to state and federal relationships. The model is empirically tested using expenditure data for various categories of locally provided goods and services. The significance of this project lies in combining the political process with the normative economic models of local public goods. Attempts to analyze intergovernment policies cannot be successful without a positive model of fiscal federalism. This project takes a first step in answering very important policy questions regarding the determinants of which levels of government provide particular goods and analyzing the nature of the interaction between levels of government.
