Why cities should not be subsidized
AbstractThe paper deals with the question of whether fiscal transfers received 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 University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20356.
Date of creation: 2002
Date of revision:
Publication status: Published in Journal of Urban Economics 3 52(2002): pp. 433-447
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