Public characteristics and expenditures on public services: An empirical analysis

This article investigates the provision of police and education services using a new method of indexing quantities of local public services that isolates movements in shadow prices and quantities in expenditure data. Demand equations for two public characteristics (the crime safety rate and high school reading test pass rates) and two categories of expenditures (education and police services) are simultaneously estimated for New Jersey municipalities. The relationship between public services and public characteristics is estimated, and both the "own" and the "cross"-effects of public services are found to be empirically significant. Increases in expenditures between 1982 and 1983 are found to largely reflect increases in quantities of education services and in prices of police services.