Agglomeration in The Provision of Public Goods

Urban economics has traditionally focused on the agglomeration effects within the private economic sector. However, there remains gap for research on the effects of public goods. Using Chinese urban and rural construction data, I found that per capita public goods increase with population growth. Through a general equilibrium model that incorporates the private sector, public sector, and inter-regional population mobility, I interpret the mechanisms underlying the scale effects of public goods. These effects are primarily attributed to the variety of benefits from non-excludability, and limited by accessibility. My first-order result shows that resources should go to larger cities to utilise their advantages, and quantitatively, a one percentage point tax rate increase reduces welfare by 1.08 points as people are forced into smaller settlements. On a secondary result, the accessibility not only limits the expansion of cities, but also leads us to another dimension of understanding - the public good budgets should focus on variable rather than fixed costs.