Iowa provided partial state funding to communities to build tourist attractions, a potential solution to local under-provision of public goods. A 10 percent increase in state funds increased county taxable retail sales by 0.1 percent. The State’s return from resulting sales tax revenue...

[...]This study shows that tourism did respond positively to the local public amenities built as part ofthe Vision Iowa program. County taxable retail sales rose by 0.9% for every 1% increase in expenditureson the projects. Because the State of Iowa taxes sales at 5% of each additional dollar of...

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. ...