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Peer Group Effects, Sorting, and Fiscal Federalism

  • Sam Bucovetsky

    ()

    (Department of Economics, York University)

  • Amihai Glazer

    ()

    (Department of Economics, University of California-Irvine)

Suppose that, other things equal, an individual's utility increases with the fraction of residents in his community who are rich. Suppose further that the rich are more willing to pay for a local public than are the poor Then the rich may over-provide a local public good, with the aim of dissuading the poor from moving into a community inhabited by the rich. We describe conditions under which the equilibrium will have mixed or homogeneous communities, and conditions under which the rich or the poor benefit from central government rules which constrain local decision making.

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File URL: http://www.economics.uci.edu/files/docs/workingpapers/2009-10/glazer-6.pdf
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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 091006.

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Length: 37 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:irv:wpaper:091006
Contact details of provider: Postal: Irvine, CA 92697-3125
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Web page: http://www.economics.uci.edu/

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