If You Build It, Will They Come?: Fiscal Federalism, Local Provision of Public Tourist Amenities, and the Vision Iowa Fund

The philosophy of fiscal federalism presumes that local communities will under- or over-provide public amenities in the presence of externalities.  We test this hypothesis using data from Vision Iowa, a state program which provided partial funding to communities to build tourist attractions.  We find a 1% increase in investment increased county taxable retail sales 0.9%.  The State’s return, from program-induced sales tax revenue, averaged 9.2% annually.  Local communities’ returns averaged 0.9% and we find a significant increase in surrounding areas’ sales.  This suggests that without state subsidies, communities would undersupply public amenities aimed at attracting visitors.