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Why Cities Should not be Subsidized

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  • Robert Fenge
  • Volker Meier

    ()

Abstract

The paper deals with the question of whether fiscal transfers re-ceived by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.

Suggested Citation

  • Robert Fenge & Volker Meier, 2001. "Why Cities Should not be Subsidized," CESifo Working Paper Series 546, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_546
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    References listed on IDEAS

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    7. Christian Baretti & Bernd Huber & Karl Lichtblau & Rüdiger Parsche, 2001. "Die Einwohnergewichtung auf Länderebene im Länderfinanzausgleich : [Gutachten im Auftrag der Länder Baden-Württemberg, Bayern, Hessen und Nordrhein-Westfalen] ; mit einem ergänzenden Gutachten des Zen," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 4, June.
    8. Wellisch,Dietmar, 2000. "Theory of Public Finance in a Federal State," Cambridge Books, Cambridge University Press, number 9780521630351, April.
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    12. Petchey, Jeffrey, 1995. "Resource Rents, Cost Differences and Fiscal Equalization," The Economic Record, The Economic Society of Australia, vol. 71(215), pages 343-353, December.
    13. Myers, Gordon M., 1990. "Optimality, free mobility, and the regional authority in a federation," Journal of Public Economics, Elsevier, vol. 43(1), pages 107-121, October.
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    Citations

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    Cited by:

    1. Eichhorst, Anja, 2007. "Evaluating the need assessment in fiscal equalization schemes at the local government level," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(5), pages 745-770, October.
    2. David Albouy, 2009. "What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values," NBER Working Papers 14981, National Bureau of Economic Research, Inc.
    3. John M. Clapp & Stephen L. Ross & Tingyu Zhou, 2015. "Retail Agglomeration and Competition Externalities: Evidence from Openings and Closings of Multiline Department Stores in the US," Working papers 2015-04, University of Connecticut, Department of Economics.
    4. Buettner, Thiess & Holm-Hadulla, Fédéric, 2013. "City size and the demand for local public goods," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 16-21.
    5. Albert SolÈ-OllÈ & Elisabet Viladecans-Marsal, "undated". "Cities as engines of regional growth," Studies on the Spanish Economy 145, FEDEA.
    6. Thiess Büttner & Fédéric Holm-Hadulla, 2008. "Cities in Fiscal Equalization," CESifo Working Paper Series 2447, CESifo Group Munich.
    7. Albert Solé Ollé & Elisabet Viladecans Marsal, 2003. "Fiscal and growth spillovers in large urban areas," Working Papers 2003/1, Institut d'Economia de Barcelona (IEB).

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