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City Competition for the Creative Class

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  • Thiess Büttner
  • Eckhard Janeba

Abstract

This paper explores the conditions under which decentralization and fiscal competition lead to a policy of subsidizing cultural activities. A theoretical analysis discusses these subsidies as a form of local public good provision which makes a city more attractive to highly educated individuals. The analysis shows that the incentive to provide the public good is particularly strong, if institutional restrictions prevent local governments from adjusting their tax structure. An empirical analysis considering the case of public theaters in Germany supports the view that public subsidies attract highly educated individuals and capitalize in the earnings of workers with basic education. Given institutional restrictions, the empirical effects suggest that local jurisdictions face a substantial fiscal incentive to subsidize cultural activities.

Suggested Citation

  • Thiess Büttner & Eckhard Janeba, 2013. "City Competition for the Creative Class," CESifo Working Paper Series 4417, CESifo.
    • Handle: RePEc:ces:ceswps:_4417
    as

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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp4417.pdf
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    More about this item

    Keywords

    fiscal competition; creative class; cultural amenities; theater subsidies; tax autonomy; capitalization; individual earnings;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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