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A Dynamic Tiebout Theory of Voluntary vs. Involuntary Provision of Public Goods

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  • Glomm, Gerhard
  • Lagunoff, Roger

Abstract

This paper considers a dynamic model of Tiebout-like migration between communities that utilize distinct allocation procedures for public goods. At issue is whether voluntary or compulsory procedures are more likely to prevail over time. We model infinitely lived individuals who make repeated, sequential location decisions over one of two communities. Each community uses a distinct mechanism for allocating public goods. The first is one in which contributions are given voluntarily by the citizenry of the community. The second is a compulsory scheme by which individuals are taxed proportionately to wealth with the tax determined by a majority vote. Opportunities to accumulate wealth exist via accumulation of public capital. The Markov Perfect equilibria of the dynamic game are studied. Our main result shows that when accumulated wealth converges to a steady state, individuals' locational choices eventually "select" the involuntary provision mechanism. This holds despite the fact that unanimous location in the voluntary provision community may in many cases remain as a Nash equilibrium of the static game each period. We also describe conditions under which voluntary provision survives. These conditions require that accumulation of capital fails to decrease wealth dispersion over time. The results are shown to be consistent with findings relating inequality to school choice. Copyright 1999 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 66 (1999)
Issue (Month): 3 (July)
Pages: 659-77

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Handle: RePEc:bla:restud:v:66:y:1999:i:3:p:659-77

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Cited by:
  1. De Fraja, Gianni, 2006. "Market and Public Provision in the Presence of Human Capital Externalities," CEPR Discussion Papers 5471, C.E.P.R. Discussion Papers.
  2. George Economides & Apostolis Philippopoulos, 2003. "Are Nash Tax Rates too Low or Too High? The Role of Endogenous Growth in Models with Public Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 37-53, January.
  3. Jaramillo, F. & Kempf, H. & Moizeau, F., 2000. "Inequality and Club Formation," Papiers d'Economie Mathématique et Applications 2000.36, Université Panthéon-Sorbonne (Paris 1).
  4. Epple, Dennis & Romano, Richard & Sieg, Holger, 2012. "The intergenerational conflict over the provision of public education," Journal of Public Economics, Elsevier, vol. 96(3), pages 255-268.
  5. Peter R. Mueser & David Mandy & Eric Parsons, 2011. "Population Population Movements in the Presence of Agglomeration and Congestion Effects: Local Policy and the Social Optimum," Working Papers 1123, Department of Economics, University of Missouri.
  6. Sigrid Roehrs & David Stadelmann, 2010. "Mobility and local income redistribution," Working Papers 2010/4, Institut d'Economia de Barcelona (IEB).
  7. Laura Marsiliani & Thomas I. Renstroem, 2010. "Privately provided public goods in a dynamic economy," Working Papers 2010_02, Durham University Business School.
  8. Ryuichi Tanaka, 2004. "On the Costs and Benefits of a Mixed Educational Regime," Econometric Society 2004 Far Eastern Meetings 470, Econometric Society.
  9. Sadrieh, Abdolkarim & Verbon, Harrie A.A., 2006. "Inequality, cooperation, and growth: An experimental study," European Economic Review, Elsevier, vol. 50(5), pages 1197-1222, July.
  10. Garrouste, Christelle & Loi, Massimo, 2009. "Applications De La Theorie Des Jeux A L'Education: Pour Quels Types Et Niveaux D'Education, Quels Modeles, Quels Resultats?
    [Applications of Game Theory in Education - What Types and At What Levels
    ," MPRA Paper 31825, University Library of Munich, Germany.

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