Why Cities Should not be Subsidized
AbstractThe paper deals with the question of whether fiscal transfers re-ceived by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 546.
Date of creation: 2001
Date of revision:
interjurisdictional transfers; congestion; publicly provided goods;
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