Why cities should not be subsidized
The paper deals with the question of whether fiscal transfers received 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.
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|Date of creation:||2002|
|Publication status:||Published in Journal of Urban Economics 3 52(2002): pp. 433-447|
|Contact details of provider:|| Postal: Ludwigstr. 28, 80539 Munich, Germany|
Web page: http://www.vwl.uni-muenchen.de
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References listed on IDEAS
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"Economics of Agglomeration,"
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- Hochman, Oded, 1981. "Land rents, optimal taxation and local fiscal independence in an economy with local public goods," Journal of Public Economics, Elsevier, vol. 15(1), pages 59-85, February.
- 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, March.
- 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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