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Abstract

We demonstrate that differentiation in public services can arise as a way of reducing competition among cities. Quality differentiation can be particularly relevant to the provision of education. If cities finance education through a property tax that generates "tax competition," we find that quality differentiation in education changes the amount of educational services provided. In the case of property-value maximization, this means a reduction in educational services in both the city with high quality and that with low quality. The reduction in educational services means that under reasonable conditions property values in both cities can increase. Copyright 2001 by Blackwell Publishing Inc.

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 3 (2001)
Issue (Month): 1 ()
Pages: 69-93

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Handle: RePEc:bla:jpbect:v:3:y:2001:i:1:p:69-93

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Find related papers by JEL classification:

• H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
• I22 - Health, Education, and Welfare - - Education - - - Educational Finance

References

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1. Burbidge, John B. & Myers, Gordon M., 1994. "Population mobility and capital tax competition," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 441-459, August.
2. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
3. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
4. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
   
   • Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
5. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
6. Sonstelie, Jon C. & Portney, Paul R., 1978. "Profit maximizing communities and the theory of local public expenditure," Journal of Urban Economics, Elsevier, vol. 5(2), pages 263-277, April.
7. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-71, Nov./Dec..
8. Jensen, Richard & Toma, Eugenia Froedge, 1991. "Debt in a model of tax competition," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 371-392, November.
9. Krelove, R., 1993. "The persistence and inefficiency of property tax finance of local public expenditures," Journal of Public Economics, Elsevier, vol. 51(3), pages 415-435, July.
10. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521233293.
    
    • Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
11. Henderson, J Vernon, 1985. "The Tiebout Model: Bring Back the Entrepreneurs," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 248-64, April.
12. Wellisch, Dietmar, 1994. "Interregional spillovers in the presence of perfect and imperfect household mobility," Journal of Public Economics, Elsevier, vol. 55(2), pages 167-184, October.
13. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.

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Cited by:

1. Ben Zissimos & Myrna Wooders, 2003. "Public Good Differentiation and the Intensity of Tax Competition," Vanderbilt University Department of Economics Working Papers 0710, Vanderbilt University Department of Economics.
   
   • Zissimos, Ben & Wooders, Myrna, 2008. "Public good differentiation and the intensity of tax competition," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1105-1121, June.
2. Ben Zissimos & Myrna H. Wooders, 2006. "Relaxing Tax Competition through Public Good Differentiation," Vanderbilt University Department of Economics Working Papers 0601, Vanderbilt University Department of Economics.
   
   • Zissimos, Ben & Wooders, Myrna, 2005. "Relaxing Tax Competition through Public Good Differentation," The Warwick Economics Research Paper Series (TWERPS) 737, University of Warwick, Department of Economics.
3. Alexander Haupt & Tim Krieger & Thomas Lange, 2011. "Competition for the International Pool of Talent: Education Policy and Student Mobility," CESifo Working Paper Series 3421, CESifo Group Munich.
   
   • Krieger, Tim & Haupt, Alexander M. & Lange, Thomas, 2011. "Competition for the International Pool of Talent: Education Policy and Student Mobility," Proceedings of the German Development Economics Conference, Berlin 2011 49, Verein für Socialpolitik, Research Committee Development Economics.
   • Alexander Haupt & Tim Krieger & Thomas Lange, 2011. "Competition for the International Pool of Talent: Education Policy and Student Mobility," Working Papers 35, University of Paderborn, CIE Center for International Economics.

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