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How to make the metropolitan area work? Neither big government, nor laissez-faire

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  • Gaigné, Carl
  • Riou, Stéphane
  • Thisse, Jacques-François

Abstract

We study how administrative boundaries and tax competition among asymmetric jurisdictions interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, cross-border commuting need not be welfare-decreasing in the presence of agglomeration economies that vary with the distribution of firms within the metropolitan area. Tax competition implies that the central business district is too small and prevents public policy enhancing global productivity to deliver their full impact. Although our results support the idea of decentralizing the provision of local public services by independent jurisdictions, they highlight the need of coordinating tax policies and the importance of the jurisdiction sizes within metropolitan areas.

Suggested Citation

  • Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2016. "How to make the metropolitan area work? Neither big government, nor laissez-faire," Journal of Public Economics, Elsevier, vol. 134(C), pages 100-113.
    • Handle: RePEc:eee:pubeco:v:134:y:2016:i:c:p:100-113
    DOI: 10.1016/j.jpubeco.2015.12.002
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    Cited by:

    1. Tidiane Ly, 2018. "Sub-metropolitan tax competition with household and capital mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1129-1169, October.
    2. Fitjar, Rune Dahl, 2019. "2019/01 Merging city and suburban governments: A public choice perspective on the Norwegian local government reform," UiS Working Papers in Economics and Finance 2019/1, University of Stavanger.
    3. Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2016. "How to make the metropolitan area work? Neither big government, nor laissez-faire," Journal of Public Economics, Elsevier, vol. 134(C), pages 100-113.
    4. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    5. Yu, Huayi & Hou, Yujuan, 2021. "A tale of two districts: The impact of district consolidation on property values in Shanghai," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    6. Wei Tang & Geoffrey J.D. Hewings, 2017. "Do city–county mergers in China promote local economic development?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(3), pages 439-469, July.
    7. Henderson, J. Vernon & Thisse, Jacques-François, 2024. "Urban and spatial economics after 50 years," LSE Research Online Documents on Economics 125675, London School of Economics and Political Science, LSE Library.
    8. Kauffmann, Albrecht, 2015. "Wie lässt sich die Bevölkerungsentwicklung von Städten korrekt ermitteln? Eine Methode zur Bereinigung amtlicher Daten um die Effekte von Gebietsänderungen am Beispiel von Ostdeutschland," IWH Online 5/2015, Halle Institute for Economic Research (IWH).
    9. Romain Gaté, 2019. "Efficiency of road pricing schemes with endogenous workplace locations in a polycentric city," Working Papers halshs-02335766, HAL.
    10. ARTIGE, Lionel & CAVENAILE, Laurent & PESTIEAU, Pierre, 2014. "The macroeconomics of PAYG pension schemes in an aging society," LIDAM Discussion Papers CORE 2014033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Yuriy V. Pavlov, 2022. "Systematisation of factors behind the agglomeration effect," Journal of New Economy, Ural State University of Economics, vol. 22(4), pages 116-138, January.
    12. Dong, Xuebing & Miao, Binbin & Chi, Ruonan, 2023. "Capital flows under integration: Evidence from China's metropolitan area development planning," China Economic Review, Elsevier, vol. 82(C).
    13. Baumgart, Eike & Blaufus, Kay & Hechtner, Frank, 2023. "The tax treatment of commuting expenses and job-related mobility," arqus Discussion Papers in Quantitative Tax Research 280, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    Metropolitan area; Tax competition; Local labor markets; Job decentralization; Administrative boundary;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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