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Is Local Public Sector Rent Extraction Higher in Progressive Cities or High Amenity Cities?

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  • Matthew E. Kahn

Abstract

Public finance theories of the median voter’s preferences and local public sector rent extraction posit that liberal cities and high amenity cities will feature a larger, better paid local public sector. Compensating differentials theory predicts that real wages will be lower in beautiful states and localities. Using both Federal and California city level administrative micro data, I study public sector compensation across space. At the Federal level, California workers are only paid 9% more than observationally identical workers in Alabama. Given the high California home prices, such workers are paying for the California amenities. Within California, beach cities hire more workers but pay them less in real terms. Liberal cities both pay public sector workers more and employ more of them. Liberal cities have much larger per-capita pension liabilities.

Suggested Citation

  • Matthew E. Kahn, 2017. "Is Local Public Sector Rent Extraction Higher in Progressive Cities or High Amenity Cities?," NBER Working Papers 23201, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23201
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    References listed on IDEAS

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    1. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
    2. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
    3. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
    4. Erzo F. P. Luttmer, 2001. "Group Loyalty and the Taste for Redistribution," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 500-528, June.
    5. Hwang, Hae-shin & Reed, W Robert & Hubbard, Carlton, 1992. "Compensating Wage Differentials and Unobserved Productivity," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 835-858, August.
    6. Gyourko, Joseph & Tracy, Joseph, 1988. "An Analysis of Public- and Private-Sector Wages Allowing for Endogenous Choices of Both Government and Union Status," Journal of Labor Economics, University of Chicago Press, vol. 6(2), pages 229-253, April.
    7. Blomquist, Glenn C & Berger, Mark C & Hoehn, John P, 1988. "New Estimates of Quality of Life in Urban Areas," American Economic Review, American Economic Association, vol. 78(1), pages 89-107, March.
    8. Kahn, Matthew E. & Vaughn, Ryan & Zasloff, Jonathan, 2010. "The housing market effects of discrete land use regulations: Evidence from the California coastal boundary zone," Journal of Housing Economics, Elsevier, vol. 19(4), pages 269-279, December.
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    More about this item

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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