This dissertation studies the relationship between local governments and their local economy. The study is motivated by the trend of increasing decentralization of public activities found all over the world. There is a strong debate on the economic effects of this decentralization trend, in which it remains unclear which activities should be decentralized, and how local governments may use their increased power to stimulate their local economy and the well-being of its citizens.

The dissertation shows that the quality of a local government determines whether local government has a positive or negative economic effect, whereas the degree of decentralization determines the size of the effect. The dissertation continues by showing how local governments may create positive economic and well-being effects through their revenue and expenditure patterns. The results show that especially investments into infrastructure enhance the performance of the local economy, as well as the well-being of the citizens. Furthermore, expenditures on public welfare also positively contribute to the local economy.

Finally, the local public financial effects of a shock to the economic system are analyzed, through a fracking-boom case study in Texas. The results show that the fracking-boom had positive economic effects, resulting in increased budgets for local governments. However, most of the additional budget had to be used to cope with the negative externalities caused by the fracking-boom.

Please send an email to d.m.o.jong@rug.nl if you are interested in receiving a hardcopy of the dissertation.