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This Town Ain't Big Enough? Quantifying Local Public Goods Spillovers

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  • Nicolas Jannin

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Aurélie Sotura

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Despite long-standing theoretical interest, empirical attempts at investigating the appropriate level of decentralization remain scarce. This paper develops a simple and flexible framework to test for the presence of public good spillovers between fiscally autonomous jurisdictions and investigate potential welfare gains from marginal fiscal integration. We build a quantitative spatial equilibrium model of cities with mobile households and endogenous local public goods causingspillovers across jurisdictional boundaries. We show how one can exploit migration and house priceresponses to shocks in local public goods at different geographic scales to reveal the intensity ofspillovers. Applying our framework to the particularly fragmented French institutional setting, westructurally estimate the model using a unique combination of administrative panel datasets on cities. Estimation relies on plausibly exogenous variations in government subsidies to instrument changes in the supply of local public goods. We find that public goods of neighboring cities account for approximately 89-96% of total public goods benefiting residents of the average French city. Finally, we simulate the effect of a reform increasing fiscal integration and find substantial welfare gains.

Suggested Citation

  • Nicolas Jannin & Aurélie Sotura, 2019. "This Town Ain't Big Enough? Quantifying Local Public Goods Spillovers," PSE Working Papers halshs-02160251, HAL.
  • Handle: RePEc:hal:psewpa:halshs-02160251
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02160251
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    References listed on IDEAS

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    Keywords

    Local Public Service; Spillover Effect; Spatial General Equilibrium; Tiebout; Welfare Economics; State Government Subsidies;
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