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Does endogenous formation of jurisdictions lead to wealth-stratification?

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  • Gravel, Nicolas
  • Thoron, Sylvie

Abstract

This paper examines the validity of the “folk” intuition that endogenous formation of jurisdictions is likely to create stratification of households according to their wealth. More specifically, we examine a simple model of jurisdiction formation, close in spirit to that of Whestoff ([27]), in which a continuum of unequally wealthy households endowed with the same preferences for one public good and one private good make a location decision in a finite set. Households who choose the same location form a jurisdiction. Within each jurisdiction, the public good is financed by a proportional wealth tax whose rate is decided by a social choice mechanism. The only assumption imposed on the mechanism is to select the most preferred tax rate of one member of the jurisdiction. We define a jurisdiction structure to be stable if it gives to no household any incentive to move away from its jurisdiction. We raise the question of whether stable jurisdiction structures will be stratified in the precise sense that if two households belong to one jurisdiction, then so do all households with intermediate wealth. We provide a necessary and, if households preferences satisfy an additional regularity property, sufficient condition on the households preferences that guarantees that any stable jurisdictions structure involves stratification in this sense. The condition is that the household’s most preferred tax rate must be a strictly monotonic function of its wealth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 132 (2007)
Issue (Month): 1 (January)
Pages: 569-583

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Handle: RePEc:eee:jetheo:v:132:y:2007:i:1:p:569-583

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Web page: http://www.elsevier.com/locate/inca/622869

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  1. Paul W. Rhode & Koleman S. Strumpf, 2000. "A Historical Test of the Tiebout Hypothesis: Local Heterogeneity from 1850 to 1990," NBER Working Papers 7946, National Bureau of Economic Research, Inc.
  2. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May.
  3. Greenberg, Joseph & Weber, Shlomo, 1986. "Strong tiebout equilibrium under restricted preferences domain," Journal of Economic Theory, Elsevier, vol. 38(1), pages 101-117, February.
  4. Guesnerie Roger & Oddou Claude, 1979. "Second best taxation as a game," CEPREMAP Working Papers (Couverture Orange) 7919, CEPREMAP.
  5. Konishi, Hideo & Le Breton, Michel & Weber, Shlomo, 1998. "Equilibrium in a Finite Local Public Goods Economy," Journal of Economic Theory, Elsevier, vol. 79(2), pages 224-244, April.
  6. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, vol. 24(3), pages 281-308, August.
  7. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
  8. Rose-Ackerman, Susan, 1979. "Market models of local government: Exit, voting, and the land market," Journal of Urban Economics, Elsevier, vol. 6(3), pages 319-337, July.
  9. Konishi, Hideo, 1996. "Voting with Ballots and Feet: Existence of Equilibrium in a Local Public Good Economy," Journal of Economic Theory, Elsevier, vol. 68(2), pages 480-509, February.
  10. Demange, G., 1991. "Intermediate Preferences and Stable Coalition Structures," DELTA Working Papers 91-16, DELTA (Ecole normale supérieure).
  11. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  12. Ellickson, Bryan, 1971. "Jurisdictional Fragmentation and Residential Choice," American Economic Review, American Economic Association, vol. 61(2), pages 334-39, May.
  13. Dunz, Karl, 1989. "Some comments on majority rule equilibria in local public good economies," Journal of Economic Theory, Elsevier, vol. 47(1), pages 228-234, February.
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Cited by:
  1. Rongili Biswas & Nicolas Gravel & Rémy Oddou, 2008. "On the Segregative Properties of Endogenous Jurisdiction Formation with a Central Government," IDEP Working Papers 0802, Institut d'economie publique (IDEP), Marseille, France, revised 05 2008.
  2. Biswas, Rongili & Gravel, Nicolas & Oddou, Rémy, 2009. "The segregative properties of endogenous jurisdictions formation with a welfarist central government," POLIS Working Papers 121, Institute of Public Policy and Public Choice - POLIS.
  3. Alison Watts, 2006. "Formation of Segregated and Integrated Groups," Working Papers 2006.127, Fondazione Eni Enrico Mattei.
  4. Rémy Oddou, 2011. "The effect of spillovers and congestion on the segregative properties of endogenous jurisdictions formation," THEMA Working Papers 2011-24, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Nizar Allouch & John P. Conley & Myrna Wooders, 2008. "Anonymous Price Taking Equilibrium in Tiebout Economies with a Continuum of Agents: Existence and Characterization," Vanderbilt University Department of Economics Working Papers 0811, Vanderbilt University Department of Economics.
  6. Nicolas Gravel & Rémy Oddou, 2011. "The segregative properties of endogenous jurisdiction formation with a land market," Working Papers halshs-00634009, HAL.
  7. Rongili Biswas & Nicolas Gravel & Rémy Oddou, 2013. "The segregative properties of endogenous formation of jurisdictions with a welfarist central government," Social Choice and Welfare, Springer, vol. 41(2), pages 293-319, July.
  8. Alison Watts, 2007. "Formation of segregated and integrated groups," International Journal of Game Theory, Springer, vol. 35(4), pages 505-519, April.
  9. Edward Cartwright & Myrna Wooders, 2008. "Behavioral Properties of Correlated Equilibrium; Social Group Structures with Conformity and Stereotyping," Vanderbilt University Department of Economics Working Papers 0814, Vanderbilt University Department of Economics.

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