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Public Goods in Open Economies with Heterogeneous Individuals

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  • Joseph E. Stiglitz

Abstract

This paper formulates a simple model of "perfect community competition." It is shown that (1) the equilibrium is Pareto optimal; (2) communities will, in general, be heterogeneous; not all individuals will have the same tastes; but (3) all individuals of a given skill within the community will have identical preferences; (4) in spite of the heterogeneity of tastes, there is complete unanimity with respect to tax and expenditure policy, and there is no scope for redistribution at the local level; (5) under certain circumstances, everyone's expected utility can be increased by introducing a particular kind of unequal treatment of individuals who are otherwise identical with respect to tastes and production characteristics; (6) when there is not "perfect community competition, " the equilibrium will, in general, not be Pareto optimal, and benefit taxation may be desirable.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0802.

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Date of creation: Nov 1981
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Publication status: published as Stiglitz, Joseph E. "Public Goods in Open Economies with Heterogeneous Individuals." Locational Analysis of Public Facilities, edited by J.F. Thisse & H.G. Zoller, North Holland Publishing Company, (1983), pp. 55-78.
Handle: RePEc:nbr:nberwo:0802

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References

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  1. Joseph E. Stiglitz, 1981. "Utilitarianism and Horizontal Equity: The Case for Random Taxation," NBER Working Papers 0694, National Bureau of Economic Research, Inc.
  2. Berglas, Eitan, 1976. "Distribution of tastes and skills and the provision of local public goods," Journal of Public Economics, Elsevier, vol. 6(4), pages 409-423, November.
  3. Joseph E. Stiglitz, 1982. "The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective," NBER Working Papers 0954, National Bureau of Economic Research, Inc.
  4. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, Econometric Society, vol. 45(4), pages 783-809, May.
  5. Arnott, Richard J & Stiglitz, Joseph E, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 471-500, November.
  6. Richard J. Arnott & Joseph E. Stiglitz, 1980. "Aggregate Land Rents and Aggregate Transport Costs," NBER Working Papers 0523, National Bureau of Economic Research, Inc.
  7. Kramer, Gerald H, 1973. "On a Class of Equilibrium Conditions for Majority Rule," Econometrica, Econometric Society, Econometric Society, vol. 41(2), pages 285-97, March.
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Cited by:
  1. Frankel, David M., 1998. "A Pecuniary Reason for Income Mixing," Staff General Research Papers 11925, Iowa State University, Department of Economics.
  2. Aaronson, Daniel, 2001. "Neighborhood Dynamics," Journal of Urban Economics, Elsevier, vol. 49(1), pages 1-31, January.
  3. Charles A. M. de Bartolome & Stephen L. Ross, 2002. "Equilibria with Local Governments and Commuting: Income Sorting vs. Income Mixing," Working papers 2002-01, University of Connecticut, Department of Economics, revised Mar 2003.
  4. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer, vol. 4(4), pages 407-427, November.
  5. de Bartolome, Charles A. M. & Rosenthal, Stuart S., 1997. "Opposites Attract: The Effect of the Federal Income Tax Code on Community Composition," Journal of Urban Economics, Elsevier, vol. 42(1), pages 18-41, July.

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