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Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting

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Thomas J. Nechyba

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Abstract

We present the first fully closed general equilibrium model of hierarchical and local public goods economies with the following features: (i) multiple agent types who are endowed with both some amount of private good (income) and a house, who are mobile between houses and jurisdictions, and who vote in local and national elections; (ii) multiple communities that finance a local public good through property taxes which are set in accordance with absolute majority rule; and (iii) a national government that produces a national public good financed through an income tax whose level is determined through majority rule voting. In contrast to previous models, no overly restrictive assumptions on preferences and technologies are required to prove the existence of an equilibrium in the presence of property taxation and voting. Thus, the existence of an equilibrium is proved without any of the major restrictions used in the past, and sufficient conditions for stratification of agents into communities based on their public good preferences and their wealth levels are found. This model lays the groundwork for a positive applied analysis of local public finance and intergovernmental relations. It furthermore builds the foundation for a parameterized computable general equilibrium model of local public goods and fiscal federalism that is used elsewhere to analyze a variety of policy issues.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0190.

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Date of creation: Jan 1996
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Handle: RePEc:nbr:nberte:0190

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H7 - Public Economics - - State and Local Government; Intergovernmental Relations

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Epple, D. & Platt, G.J., 1992. "Equilibrium Among Jurisdictions When Households Differ by Preferences and Income," GSIA Working Papers 1992-08, Carnegie Mellon University, Tepper School of Business.
  2. 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. [Downloadable!] (restricted)
  3. Thomas J. Nechyba, 1996. "Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion," NBER Working Papers 5419, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November. [Downloadable!] (restricted)
  5. Greenberg, Joseph, 1977. "Existence of an equilibrium with arbitrary tax schemes for financing local public goods," Journal of Economic Theory, Elsevier, vol. 16(2), pages 137-150, December. [Downloadable!] (restricted)
  6. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May. [Downloadable!] (restricted)
  7. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, vol. 47(3), pages 627-36, May. [Downloadable!] (restricted)
  8. Henderson, J. Vernon, 1991. "Separating Tiebout equilibria," Journal of Urban Economics, Elsevier, vol. 29(1), pages 128-152, January. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  10. Krelove, R., 1993. "The persistence and inefficiency of property tax finance of local public expenditures," Journal of Public Economics, Elsevier, vol. 51(3), pages 415-435, July. [Downloadable!] (restricted)
  11. Ellickson, Bryan, 1979. "Competitive equilibrium with local public goods," Journal of Economic Theory, Elsevier, vol. 21(1), pages 46-61, August. [Downloadable!] (restricted)
  12. Slutsky, Steven, 1977. "A voting model for the allocation of public goods: Existence of an equilibrium," Journal of Economic Theory, Elsevier, vol. 14(2), pages 299-325, April. [Downloadable!] (restricted)
  13. Denzau, Arthur T & Parks, Robert P, 1975. "The Continuity of Majority Rule Equilibrium," Econometrica, Econometric Society, vol. 43(5-6), pages 853-66, Sept.-Nov. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Wooders, Myrna, 1978. "Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 18(2), pages 328-348, August. [Downloadable!] (restricted)
  16. Greenberg, Joseph & Shitovitz, Benyamin, 1988. "Consistent voting rules for competitive local public goods economies," Journal of Economic Theory, Elsevier, vol. 46(2), pages 223-236, December. [Downloadable!] (restricted)
  17. Denzau, Arthur T. & Parks, Robert P., 1983. "Existence of voting-market equilibria," Journal of Economic Theory, Elsevier, vol. 30(2), pages 243-265, August. [Downloadable!] (restricted)
  18. Mamoru Kaneko, 1980. "Housing Market with Indivisibility," Cowles Foundation Discussion Papers 571, Cowles Foundation, Yale University. [Downloadable!]
  19. Berliant, Marcus, 1985. "Equilibrium models with land : A criticism and an alternative," Regional Science and Urban Economics, Elsevier, vol. 15(2), pages 325-340, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kira Boerner & Silke Uebelmesser, 2007. "Migration and the welfare state: The economic power of the non-voter?," International Tax and Public Finance, Springer, vol. 14(1), pages 93-111, February. [Downloadable!] (restricted)
    Other versions:
  2. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," NBER Working Papers 13236, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Patrick Bayer & Robert McMillan & Kim Rueben, 2003. "An Equilibrium Model of Sorting in an Urban Housing Market: A Study of the Causes and Consequences of Residential Segregation," Working Papers 03-01, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  4. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2003. "A Unified Framework for Estimating Preferences for Schools and Neighborhoods," Working Papers 872, Economic Growth Center, Yale University. [Downloadable!]
  5. Martin Bodenstein & Heinrich Ursprung, 2005. "Political yardstick competition, economic integration, and constitutional choice in a federation:," Public Choice, Springer, vol. 124(3), pages 329-352, September. [Downloadable!] (restricted)
    Other versions:
  6. John P. Conley & Myrna Holtz Wooders, 1998. "The Tiebout Hypothesis: On the Existence of Pareto Efficient Competitive Equilibrium," Working Papers mwooders-98-06, University of Toronto, Department of Economics. [Downloadable!]
  7. Caroline M. Hoxby, 1999. "The Productivity of Schools and Other Local Public Goods Providers," NBER Working Papers 6911, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Thomas J. Nechyba, 2001. "Centralization, Fiscal Federalism and Private School Attendance," NBER Working Papers 8355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Francisco Martínez Mora, 2004. "The impact of fiscal decentralization on income segregation," Economic Working Papers at Centro de Estudios Andaluces E2004/68, Centro de Estudios Andaluces. [Downloadable!]
  10. Thomas J. Nechyba, 1996. "Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion," NBER Working Papers 5419, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Patrick Bayer & Robert McMillan & Kim Rueben, 2003. "An Equilibrium Model of Sorting in an Urban Housing Market: The Causes and Consequences of Residential Segregation," Working Papers 860, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  12. John P. Conley & Hideo Konishi, 2000. "Migration-Proof Tiebout Equilibrium: Existence and Asymptotic Efficiency," Boston College Working Papers in Economics 452, Boston College Department of Economics, revised 01 Dec 2000. [Downloadable!]
    Other versions:
  13. Stephanie Riegg Cellini & Fernando Ferreira & Jesse Rothstein, 2008. "The Value of School Facilities: Evidence from a Dynamic Regression Discontinuity Design," NBER Working Papers 14516, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Thomas Nechyba, 1996. "Fiscal federalism and local public finance: A computable general equilibrium (CGE) framework," International Tax and Public Finance, Springer, vol. 3(2), pages 215-231, May. [Downloadable!] (restricted)
  15. Nizar Allouch & John P. Conley & Myrna Wooders, 2008. "Anonymous Price Taking Equilibrium in Tiebout Economies with a Continuum of Agents; Existence and Characterization," Working Papers 0811, Department of Economics, Vanderbilt University. [Downloadable!]
  16. Kurt Schmidheiny, 2005. "Income Segregation from Local Income Taxation When Households Differ in Both Preferences and Incomes," Discussion Papers Series, Department of Economics, Tufts University 0509, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  17. Fernández, Raquel, 2001. "Sorting, Education and Inequality," CEPR Discussion Papers 3020, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  18. Thomas J. Nechyba, 1999. "A Model of Multiple Districts and Private Schools: The Role of Mobility, Targeting, and Private School Vouchers," NBER Working Papers 7239, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Francisco Martínez Mora, 2003. "Opting-out of Public Education in Urban Economies," Economic Working Papers at Centro de Estudios Andaluces E2003/52, Centro de Estudios Andaluces. [Downloadable!]
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