The impact of fiscal decentralization on income segregation

We investigate how decentralizing the provision and funding of a publicly provided good from central (or regional) to local governments affects income segregation in an urban area. As the previous theoretical literature suggests, local provision and funding of a publicly provided good by itself generates incentives for income segregation. However, other segregating forces such as local amenities are also at work in urban areas. We show that, once this important feature of urban economies is considered, decentralisation will reduce income segregation if the population has heterogeneous preferences for the publicly provided good.