Estimating Equilibrium Models of Local Jurisdictions

Research over the past several years has led to development of models characterizing equilibrium in a system of local jurisdictions. An important insight from these models is that plausible single-crossing assumptions about preferences generate strong predictions about the equilibrium distribution of households across communities. To date, these predictions have not been subjected to formal empirical tests. The purpose of this paper is to provide an integrated approach for testing predictions from this class of models. This paper focuses primarily on the locational equilibrium implied by these models. In particular, we focus on predictions about the distribution of households by income across communities. The central idea of the estimation strategy is to match the observed quantiles of the income distributions with those predicted by the model. By drawing inferences from a structural general equilibrium model, the approach of this paper offers a unified treatment of theory and empirical testing.