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National Interference in Local Public Good Provision

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  • Robert Dur

    ()
    (Faculty of Economics, Erasmus University Rotterdam)

  • Klaas Staal

    ()
    (Faculty of Economics, Erasmus University Rotterdam)

Abstract

We analyze a simple model of local public good provision in a country consisting of a large number of heterogeneous regions, each comprising two districts, a city and a village. When districts remain autonomous and local public goods have positive spillover effects on the neighbouring district, there is underprovision of public goods in both the city and the village. When districts unite, underprovision persists in the village (and may even become more severe), whereas overprovision of public goods arises in the city as urbanites use their political power to exploit the villagers. From a social welfare point of view, inhabitants of the village have insufficient incentives to vote for unification. We examine how national transfers to local governments can resolve these problems.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-074/1.

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Date of creation: 22 Sep 2003
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Handle: RePEc:dgr:uvatin:20030074

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Keywords: local public goods; municipal consolidation; voting; intergovernmental transfers;

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