MaCurdy and Nechyba (MN) have written a very interesting chapter that is likely to provide a point of departure for significant future work on fiscal federalism and, especially, for incorporation of demographic factors in empirical applications of theories of local public goods. As an extra benefit, they provide the reader with a thorough and wideranging review of the theoretical literature in this area, which this reader at least found to be worth the price of admission. The chapter develops a model of local public goods in which the benefits and costs of goods may vary with the demographic composition of the community, especially age. For example, the benefits and costs of publicly supported education or nursing homes clearly depend on how many school-age children or elderly there are in the community. Other expenditures, such as local infrastructure, are less sensitive to the age composition of the community.

There are several classic questions within the local public finance and fiscal federalism literatures that they address within this framework. The one on which they focus most attention is whether individual jurisdictions will choose optimal levels of local public goods and, if not, whether departures from optimality can be offset by the actions of higher levels of government. They begin by considering a case in which neither local public goods nor local taxes create any spillover effects across jurisdictional boundaries.