The 'rationality' of municipal capital spending. Evidence from New Jersey

Douglas Holtz-Eakin, Harvey S. Rosen

Research output: Contribution to journalArticlepeer-review

36 Scopus citations


Some analysts interpret movements in capital spending by sub-federal levels of government as rational reactions to changing economic and demographic conditions. Others attribute changes to myopic decision-making by politically motivated government officials. In this paper we present a formal definition of 'rational' decision-making that is amenable to econometric testing, and utilize panel data on capital spending by a sample of New Jersey municipalities to test it. We find that on the basis of data from all communities, one cannot reject the joint hypotheses of forward-looking, rational, and unconstrained planning. However, the behavior of capital spending differs sharply between both suburban versus non-suburban communities, and between small versus large communities.

Original languageEnglish (US)
Pages (from-to)517-536
Number of pages20
JournalRegional Science and Urban Economics
Issue number3
StatePublished - Aug 1989

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Urban Studies


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