Governance Choice - A Theoretical Analysis
Policy debate has lasted over the past twenty years regarding the distribution of federal highway funding in the US Federal-Aid Highway Program. The controversy arose as the program’s payment to the individual states did not match the amount of federal highway taxes each state’s highway users pay to the Highway Trust Fund (HTF), which is commonly referred to as the “donor-donee” problem (Kirk, 2004). Donee states like Alaska experience high returns from the HTF, donor states like California contribute more than they receive, while some states like Ohio have experienced instability and cycling in terms of their donor/donee status. In general, the allocation of federal highway funds appears to be based on formulas that are biased in favor of states with relatively low highway use to maintain national integration (Johnson and Libecap, 2000). In such an imbalanced allocative program, a fiscal correspondence problem arises when policy makers in donee states spend to benefit their constituent travelers and suppliers, but whose welfare costs are borne by taxpayers in all the states.
KeywordsMedian Voter Travel Demand Ultimatum Game Transportation Infrastructure Road Infrastructure
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