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City Competition for the Creative Class

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  • Buettner, T
  • Janeba, Eckhard

Abstract

Considering data for individual earnings we show that the local subsidization of cultural activities in Germany exerts effects on the wage distribution in the sense that these subsidies tend to reduce the wage gap between those with higher and less education. These findings motivate a theoretical analysis which explains the effects of subsidies in terms of a cross-sectional capitalization into the earnings of the immobile factor. In the theoretical model, the local government is focusing on improving the economic conditions faced by immobile residents. In this context, subsidization of cultural activities is discussed as a form of local public goods provision which makes a city more attractive to highly educated individuals who capture the rents from the production process. The theoretical analysis shows that inter-jurisdictional competition for the highly educated introduces a distortion of public goods provision, in the sense that uncoordinated policies lead to an inefficiently large supply of the public good. Our results suggest that since German local governments are prevented from adjusting their tax structure in a way that meets the efficiency requirements under fiscal competition, they resort to extending the supply of cultural activities through public subsidization. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79838.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79838

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  1. Günther Schulze & Anselm Rose, 1998. "Public Orchestra Funding in Germany – An Empirical Investigation," Journal of Cultural Economics, Springer, vol. 22(4), pages 227-247, December.
  2. Brueckner, J.K. & Thisse, J.-F. & Zenou, Y., 1996. "Why is central Paris rich and downtown Detroit poor ? An amenity-based theory," CORE Discussion Papers 1996065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  4. Falck, Oliver & Fritsch, Michael & Heblich, Stephan, 2011. "The phantom of the opera: Cultural amenities, human capital, and regional economic growth," Munich Reprints in Economics 20513, University of Munich, Department of Economics.
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  10. Eric Thompson & Mark Berger & Glenn Blomquist & Steven Allen, 2002. "Valuing the Arts: A Contingent Valuation Approach," Journal of Cultural Economics, Springer, vol. 26(2), pages 87-113, May.
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  13. Seaman, Bruce A., 1979. "Local subsidization of culture: A public choice model based on household utility maximization," Journal of Behavioral Economics, Elsevier, vol. 8(1), pages 93-131.
  14. Enrico Moretti, 2002. "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data," NBER Working Papers 9108, National Bureau of Economic Research, Inc.
  15. Florian Lehmer & Joachim Möller, 2010. "Interrelations between the urban wage premium and firm-size wage differentials: a microdata cohort analysis for Germany," The Annals of Regional Science, Springer, vol. 45(1), pages 31-53, August.
  16. Keen, M. & Marchand, M., . "Fiscal competition and the pattern of public spending," CORE Discussion Papers RP -1284, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Hiller, Norbert & Lerbsy, Oliver, 2014. "The capitalization of non-market attributes into regional housing rents and wages: Evidence on German functional labor market areas," CAWM Discussion Papers 71, Center of Applied Economic Research Münster (CAWM), University of Münster.

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