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On the Optimal Structure of Local Governments

Author

Listed:
  • Hochman, Oded
  • Pines, David
  • Thisse, Jacques-François

Abstract

We show that space matters in designing the optimal provision of local public goods (LPGs). Geography imposes particular institutional structure of local governments due to the overlapping of market areas associated with different LPGs. The optimum can be decentralized through local governments that have jurisdiction over market areas of all LPG-types. This implies that the appropriate suppliers of LPGs are metropolitan approach invalidates the prevailing theory of fiscal federalism, according to which a layer of government should be established for each type of LPG.

Suggested Citation

  • Hochman, Oded & Pines, David & Thisse, Jacques-François, 1994. "On the Optimal Structure of Local Governments," CEPR Discussion Papers 899, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:899
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    Keywords

    Land Rent; Local Public Goods; Metropolitan Governments; Transportation Costs;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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