Role of Flexible Functional Form in Estimating Local Government Structure

Abstract

This paper examines the relationship between population heterogeneity and decentralized local government structure without making
any a-priori assumption of the estimating equation and making use of consistent data over time. Past studies assume specific functional forms
and fail to control for consistency in the pooled data. A second-order Taylor’s series expansion of a transcendental logarithmic function is applied
to estimate the nature of the functional form of the local government structure. Pooled data from a consistent sample of 95 major metropolitan
areas in the U.S. during 1982-1992 are employed, and several hypotheses are tested. The function is restricted according to the hypotheses testresults
and then estimated as the optimal functional form. Unlike past studies, the results show strong linear trends of the population heterogeneity
variables for special districts, but strong non-linear trends for other types of local governments.