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Published online by Cambridge University Press:  11 October 2021

Emily C. Skarbek*
Political Theory, Brown University, USA


Fiscal equivalence in the public administration of justice requires local police and courts to be financed exclusively by the populations that benefit from their services. Within a polycentric framework, broad based taxation to achieve fiscal equivalence is a desirable principle of public finance because it conceptually allows for the provision of justice to be determined by constituent’s preferences, and increases the political accountability of service providers to constituents. However, the overproduction of justice services can readily occur when the benefits of the justice system are not enjoyed equally. Paradoxically, the same properties that make fiscal equivalence desirable by imposing restraint and control between constituents and local government also create internal pressures for agents of the state to engage in predatory, revenue-generating behavior.

Research Article
© 2021 Social Philosophy & Policy Foundation. Printed in the USA

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Political Theory Project, Brown University, I would like to thank the other contributors to this volume, as well as Daniel D’Amico, Brandon Davis, Samuel DeCanio, David Schmidtz, David Skarbek, and anonymous referees for helpful feedback. I would also like to thank the John Templeton Foundation for financial support for this project. Any errors are my responsibility.


1 Monica Davey and Manney Fernandez, “Security in Ferguson is Tightened after Night of Unrest,” New York Times, November 25, 2014

2 Department of Justice, Civil Rights Division, “Investigation of the Ferguson Police Department,” (March 4, 2015). Retrieved from

3 Department of Justice, Civil Rights Division, “Investigation of the Ferguson Police Department,” p. 15.

4 Matt Apuzzo and John Eligon, “Ferguson Police Tainted by Bias, Justice Department Says,” New York Times, March 5, 2015.

5 Department of Justice, Civil Rights Division, “Investigation of the Ferguson Police Department,” p. 2.

6 In 2013, the Ferguson Municipal Court disposed of 24,532 warrants and 12,018 cases, or about 3 warrants and 1.5 cases per household. See

7 Department of Justice, Civil Rights Division, “Investigation of the Ferguson Police Department,” p. 2.

8 Ibid.

9 In the ten years leading up to the 2014 incidents in Ferguson, the county was averaging 13 percent of their total annual revenue from fees and fines. By comparison, even the worst offending counties (in the 98th percentile) during this period were averaging less than 4 percent of total revenue. Author’s calculations based on available county budget data Census of Governments, U.S. Census Bureau (Census) 1977–2012. In February 2019, the Supreme Court ruled in the case of Timbs v. Indiana 586 U.S. __ (2019) against the ability of states to levy excessive fines. While this demonstrates recognition of the problem, it doesn’t specifically address the systematic problem.

10 Census of Governments, U.S. Census Bureau (Census) 1977–2012.

11 For example, the ability for state and local agencies to profit off of civil asset forfeiture is governed by state law; only seven states and the District of Columbia prohibit law enforcement agencies from profiting at all from seizures, whereas twenty-five states allow law enforcement to keep 100 percent of forfeited revenue ( Mughan, S., Li, D., and Nicholson-Crotty, S., “When Law Enforcement Pays: Costs and Benefits for Elected Versus Appointed Administrators Engaged in Asset Forfeiture,” The American Review of Public Administration 50, no. 3 (2020): 297314 CrossRefGoogle Scholar.

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14 Trymaine Lee and Michele Richinick, “Police: Michael Brown Stopped Because He Blocked Traffic,” MSNBC, August 15, 2014.

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19 Both James Buchanan and Vincent Ostrom conceptualized the constitutional “attitude” as something much broader than the constitutional rules on the books.

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21 All housing market data comes from publicly available consumer analysis, accessed in 2020 at

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25 Tiebout, “A Pure Theory of Local Expenditures,” 416-24.

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28 Tiebout, “A Pure Theory of Local Expenditures.”

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30 When local public governance is insufficiently meeting the demands of the population, alternative means of meeting those governance needs will emerge (E. C. Schaeffer, “Remittances and Reputations in Hawala Money-Transfer Systems: Self-Enforcing Exchange on an International Scale,” Journal of Private Enterprise 24, no. 1 [2008]). In the extreme case of prison populations where physical exit is impossible and the local provision of governance is insufficiently meeting the demands of the population, extra-legal governance can be supplied by community norms (in the case of smaller populations) or organized, hierarchical prison gangs (David Skarbek, “Governance and Prison Gangs,” American Political Science Review 105, no. 4 [2011]: 702-716; David Skarbek, The Social Order of the Underworld: How Prison Gangs Govern the American Penal System [New York: Oxford University Press, 2014]; David Skarbek, “Covenants without the Sword? Comparing Prison Self-Governance Globally,” American Political Science Review 110, no. 4 [2016]: 845-62).

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35 See Tarko, Vlad, Elinor Ostrom: An Intellectual Biography (London: Rowman and Littlefield International, 2017)Google Scholar for an excellent overview.

36 Schmidtz, David, The Limits of Government: An Essay on the Public Goods Argument (New York: Westview Press, 1991)Google Scholar; D’Amico, D. J., “The Social Provision of Punishment and Incarceration,” American Journal of Economics and Sociology 76, no. 5 (2017): 11071132 CrossRefGoogle Scholar.

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38 Buchanan and Tullock, The Calculus of Consent; M. Olson, “The Principle of ‘Fiscal Equivalence’,” 479–487; Ostrom and Ostrom, “A Theory for Institutional Analysis of Common Pool Problems,” 157.

39 Knut Wicksell, “Finanztheoretische Untersuchungen” (Jena: Gustav Fischer, 1896), translated as “A New Principle of Just Taxation” in R. Musgrave and A. Peacock, eds., Classics in the Theory of Public Finance (New York: St. Martins, 1994).

40 See Buchanan, James M. and Wagner, R. E., Democracy in Deficit: The Political Legacy of Lord Keynes (New York: Academic Press, 1977)Google Scholar.

41 Knut Wicksell was an early advocate of the principle of fiscal equivalence. It is notable that he coupled the benefit principle of financing public goods with a unanimity principle for deciding tax contributions. In other words, there had to be a very high degree of agreement / consent within the tax base / population for how well their contributions were being spent. See Buchanan, James, “Wicksell on Fiscal Reform: Comment,” The American Economic Review 42, no. 4 (1952): 599602 Google Scholar.

42 Aligica, Paul Dragos, Boettke, Peter J., and Tarko, Vlad, Public Governance and the Classical-Liberal Perspective: Political Economy Foundations (New York: Oxford University Press, 2019)CrossRefGoogle Scholar; V. Ostrom, “Can Federalism Make a Difference?”

43 On fiscal illusion, see Buchanan, James M., Collected Works of James M. Buchanan, Volume 1: The Logical Foundations of Constitutional Liberty (Indianapolis, IN: Liberty Fund, 1999), 150 Google Scholar. The benefits of transparency assume current receipts finance current expenditures. The more that deficit finance is employed to finance current consumption, the more taxpayers are likely to experience fiscal illusion, further exacerbating the problems of accurately assessing the benefits and costs of justice services.

44 Olson, “The Principle of ‘Fiscal Equivalence’."

45 Stillman, Richard J. II Preface to Public Administration: A Search for Themes and Directions (Burke, VA: Chatelaine Press, 1999 Google Scholar [1991]).

46 Boettke, Peter J., Lemke, Jayme S., and Palagashvili, Liya, “Re-Evaluating Community Policing in a Polycentric System,” Journal of Institutional Economics 12, no. 2 (2016): 305325 CrossRefGoogle Scholar.

47 The failures of “community policing” initiatives of the 1980s are an example whereby the rhetoric of more community involvement turned out in practice to lead to greater centralization (Boettke, Lemke, and Palagashvili, “Re-Evaluating Community Policing in a Polycentric System.”

48 Evans, W. N. and Owens, E. G., “COPS and Crime,” Journal of Public Economics 91, nos. 1–2 (2007): 181201 CrossRefGoogle Scholar.

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50 Coyne, C. J. and Hall, A. R., Tyranny Comes Home: The Domestic Fate of US Militarism (Redwood City, CA: Stanford University Press, 2018)CrossRefGoogle Scholar.

51 I am aware of the large literature on private provision of public goods, including policing, law, courts, and jails. Nevertheless, this characterization is standard in public economics (Paul Samuelson, “The Pure Theory of Public Expenditure,” Review of Economics and Statistics 36, no. 4 [1954]: 387–89) and public choice (James M. Buchanan, “Contractarian Political Economy and Constitutional Interpretation,” The American Economic Review 78, no. 2 [1988], 135–39). Empirically, more often than not, the institutions charged with the administration of justice are publicly administered.

52 Otherwise known as Lindahl pricing of public goods.

53 Moreover, as public choice scholars have pointed out that even reasonable estimates would be hard to make in the cases where benefits differ among people and are not correlated with observable metrics like the crime statistics, location and types of crimes committed, arrest rates, conviction rates, clearance rates, etc. Vickery (W. Vickery, “Counterspeculation, Auctions, and Competitive Sealed Tenders,” The Journal of Finance 16, no. 1 [1961]: 8–37), Clarke (E. H. Clarke, “Multipart Pricing of Public Goods,” Public Choice 11, no. 1 [1971]: 17–33) and Groves (T. Groves, “Incentives in Teams,” Econometrica 41, no. 4 [1973]: 617–31) provide a formal mechanism design solution to the problem, which fails to address the fundamental problem regarding the demand estimation and revelation process for justice services.

54 Wicksell understood this point and was particularly concerned with measurability, even though he did think it was conceptually possible (Buchanan, “Wicksell on Fiscal Reform”).

55 Buchanan, Collected Works of James M. Buchanan, 154.

56 “The sum of the payoffs in each column is the same, as consistent with the Samuelsonian analysis in which cost shares do not affect the efficiency of the provision of a pure public good” (James Buchanan, and R. D. Congleton, Politics by Principle, Not Interest: Towards Nondiscriminatory Democracy, [New York: Cambridge University Press, 2006], 155).

57 Note that this example says nothing about the allocation of justice services between policing, courts, and jails. The total quantity is an aggregate and assumes quality is held constant.

58 If it were an iterated game, we would need to model this with the behaviors of As and Bs as strategically dependent and consider the possibilities for Coasian bargaining between groups.

59 Tullock, Gordon and Rowley, C. K., The Rent-Seeking Society, Volume 5 (Indianapolis, IN: Liberty Fund, 2005)Google Scholar.

60 Davis, B. R., “Testing Mechanisims: Carceral Contact and Political Participation,” Social Science Quarterly 101, no. 2 (2019): 909924 CrossRefGoogle Scholar.

61 For instance, the example generated outcomes based on a majoritarian system. Lacey argues that parliamentary systems of voting are likely to generate different dynamics as they tend to be more inclusive of minority voice (Nicola Lacey, The Prisoners’ Dilemma: Political Economy and Punishment in Contemporary Democracies [Cambridge: Cambridge University Press, 2008]).

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70 G. Prowse, V. M. Weaver, and T. L. Meares, “The State from Below: Distorted Responsiveness in Policed Communities,” Urban Affairs Review (2019): p. 1078087419844831.

71 Ibid.

72 Murphy, K., Hinds, L., and Fleming, J., “Encouraging Public Cooperation and Support for Police,” Policing and Society 18, no. 2 (2008): 136–55CrossRefGoogle Scholar; Desmond, M., Papachristos, A. V., and Kirk, D. S., “Police Violence and Citizen Crime Reporting in the Black Community,” American Sociological Review 81, no. 5 (2016): 857–76CrossRefGoogle Scholar.

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