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Product Differentiation and Public Education

  • Hoyt, William H
  • Jensen, Richard A

We demonstrate that differentiation in public services can arise as a way of reducing competition among cities. Quality differentiation can be particularly relevant to the provision of education. If cities finance education through a property tax that generates "tax competition," we find that quality differentiation in education changes the amount of educational services provided. In the case of property-value maximization, this means a reduction in educational services in both the city with high quality and that with low quality. The reduction in educational services means that under reasonable conditions property values in both cities can increase. Copyright 2001 by Blackwell Publishing Inc.

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 3 (2001)
Issue (Month): 1 ()
Pages: 69-93

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Handle: RePEc:bla:jpbect:v:3:y:2001:i:1:p:69-93
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  2. WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP -831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Burbidge, John B. & Myers, Gordon M., 1994. "Population mobility and capital tax competition," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 441-459, August.
  4. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  5. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  6. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-71, Nov./Dec..
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  8. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  9. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  10. Wellisch, Dietmar, 1994. "Interregional spillovers in the presence of perfect and imperfect household mobility," Journal of Public Economics, Elsevier, vol. 55(2), pages 167-184, October.
  11. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  12. Sonstelie, Jon C. & Portney, Paul R., 1978. "Profit maximizing communities and the theory of local public expenditure," Journal of Urban Economics, Elsevier, vol. 5(2), pages 263-277, April.
  13. Henderson, J Vernon, 1985. "The Tiebout Model: Bring Back the Entrepreneurs," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 248-64, April.
  14. Jensen, Richard & Toma, Eugenia Froedge, 1991. "Debt in a model of tax competition," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 371-392, November.
  15. 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.
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