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On the Optimal Structure of Local Governments

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  • Hochman, Oded
  • Pines, David
  • Thisse, Jacques-Francois

Abstract

The authors show that space matters in designing the optimal provision of local public goods. Geography imposes a particular institutional structure of local governments due to the overlapping of market areas associated with different local public goods. The optimum can be decentralized through local governments that have jurisdiction over market areas of all local public good types. This implies that the appropriate suppliers of local public goods are metropolitan governments which finance them through user charges and land rent. In addition, the authors' approach invalidates the prevailing theory of fiscal federalism, according to which a layer of government should be established for each type of local public good. Copyright 1995 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 85 (1995)
Issue (Month): 5 (December)
Pages: 1224-40

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Handle: RePEc:aea:aecrev:v:85:y:1995:i:5:p:1224-40

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Cited by:
  1. Yvon Rocaboy, 2006. "Qui paie la ville ? Logique et efficacité du système de financement," Revue d'Économie Financière, Programme National Persée, vol. 86(5), pages 99-110.
  2. Matthias Wrede, 2006. "Labor and household mobility: efficiency and equilibrium," The Annals of Regional Science, Springer, vol. 40(1), pages 117-131, March.
  3. Hochman, Oded, 2011. "Efficient agglomeration of spatial clubs," Journal of Urban Economics, Elsevier, vol. 69(1), pages 118-135, January.
  4. Heikkila, Eric J., 1996. "Are municipalities Tieboutian clubs?," Regional Science and Urban Economics, Elsevier, vol. 26(2), pages 203-226, April.
  5. Okamoto, Ryosuke, 2000. "The system of towns with spatial public goods," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 627-637, December.
  6. Stephen Billings & Thomas Thibodeau, 2011. "Intrametropolitan Decentralization: Is Government Structure Capitalized in Residential Property Values?," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 416-450, May.
  7. Roland Andersson & Bo Söderberg, 2012. "Financing roads and railways with decentralized real estate taxes: the case of Sweden," The Annals of Regional Science, Springer, vol. 48(3), pages 839-853, June.
  8. Baleiras, Rui Nuno, 2001. "To Fragment or to Consolidate Jurisdictions: the Optimal Architecture of Government," FEUNL Working Paper Series wp401, Universidade Nova de Lisboa, Faculdade de Economia.
  9. Lawrence Southwick, 2005. "Sewer plant operating efficiency, patronage, and competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1-13.
  10. Samuel Baker, 2000. "Does Enhanced Veto Authority Centralize Government?," Public Choice, Springer, vol. 104(1), pages 63-79, July.
  11. Homburg, Stefan, 1997. "Ursachen und Wirkungen eines zwischenstaatlichen Finanzausgleichs," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 61-95.
  12. Maria Balaguer-Coll & Diego Prior & Emili Tortosa-Ausina, 2010. "Decentralization and efficiency of local government," The Annals of Regional Science, Springer, vol. 45(3), pages 571-601, December.
  13. Brueckner, Jan K., 1998. "Testing for Strategic Interaction Among Local Governments: The Case of Growth Controls," Journal of Urban Economics, Elsevier, vol. 44(3), pages 438-467, November.
  14. Grégoire ROTA GRAZIOSI, 2001. "Une analyse économique de la sécession," Discussion Papers (REL - Recherches Economiques de Louvain) 2001034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  15. Mototsugu Fukushige & Yingxin Shi, 2014. "Efficient Scale of Local Government in China: Quantile Regression Approach to County-Level Data," Discussion Papers in Economics and Business 14-15, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  16. Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
  17. Rubinchik-Pessach, Anna, 2005. "Can decentralization be beneficial?," Journal of Public Economics, Elsevier, vol. 89(7), pages 1231-1249, July.

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