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City Competition for the Creative Class

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  • Buettner, T
  • Janeba, Eckhard

Abstract

Considering data for individual earnings we show that the local subsidization of cultural activities in Germany exerts effects on the wage distribution in the sense that these subsidies tend to reduce the wage gap between those with higher and less education. These findings motivate a theoretical analysis which explains the effects of subsidies in terms of a cross-sectional capitalization into the earnings of the immobile factor. In the theoretical model, the local government is focusing on improving the economic conditions faced by immobile residents. In this context, subsidization of cultural activities is discussed as a form of local public goods provision which makes a city more attractive to highly educated individuals who capture the rents from the production process. The theoretical analysis shows that inter-jurisdictional competition for the highly educated introduces a distortion of public goods provision, in the sense that uncoordinated policies lead to an inefficiently large supply of the public good. Our results suggest that since German local governments are prevented from adjusting their tax structure in a way that meets the efficiency requirements under fiscal competition, they resort to extending the supply of cultural activities through public subsidization.

Suggested Citation

  • Buettner, T & Janeba, Eckhard, 2013. "City Competition for the Creative Class," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79838, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79838
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    Cited by:

    1. Amitrajeet A. Batabyal & Peter Nijkamp, 2019. "Creative capital, information and communication technologies, and economic growth in smart cities," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 28(2), pages 142-155, February.
    2. Amitrajeet A. Batabyal & Karima Kourtit & Peter Nijkamp, 2019. "Using local public goods to attract and retain the creative class: A tale of two cities," Regional Science Policy & Practice, Wiley Blackwell, vol. 11(3), pages 571-581, August.
    3. Riedel, Nadine & Simmler, Martin & Wittrock, Christian, 2020. "Local fiscal policies and their impact on the number and spatial distribution of new firms," Regional Science and Urban Economics, Elsevier, vol. 83(C).
    4. Batabyal, Amitrajeet, 2018. "Creative Class Competition and Innovation in the Absence of Patent Protection," MPRA Paper 89604, University Library of Munich, Germany, revised 17 Apr 2018.
    5. Oliver Falck & Michael Fritsch & Stephan Heblich & Anne Otto, 2018. "Music in the air: estimating the social return to cultural amenities," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 42(3), pages 365-391, August.
    6. Norbert Hiller & Oliver Lerbs, 2015. "The capitalization of non-market attributes into regional housing rents and wages: evidence on German functional labor market areas," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 35(1), pages 49-72, February.
    7. Batabyal, Amitrajeet A. & Beladi, Hamid, 2018. "Artists, engineers, and aspects of economic growth in a creative region," Economic Modelling, Elsevier, vol. 71(C), pages 214-219.
    8. Batabyal, Amitrajeet A. & Yoo, Seung Jick, 2018. "Schumpeterian creative class competition, innovation policy, and regional economic growth," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 86-97.
    9. Hyun-kyung Lee & Hong-bae Kim, 2019. "Regional preferences for the living environment and mobility of researchers and general workers: the case of Korea," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(1), pages 169-186, February.
    10. Batabyal, Amitrajeet & Nijkamp, Peter, 2020. "Interregional Competition for Mobile Creative Capital With and Without Physical Capital Mobility," MPRA Paper 105589, University Library of Munich, Germany, revised 25 Jan 2021.
    11. Amitrajeet A. BATABYAL & Seung Jick YOO, 2019. "A Stochastic Model Of Competition Between Two Cities For Members Of The Creative Class," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 37-42, December.
    12. Batabyal, Amitrajeet, 2020. "Monopoly vs. Individual Welfare When a Local Public Good is Used to Attract the Creative Class," MPRA Paper 101465, University Library of Munich, Germany, revised 09 Jun 2020.
    13. Batabyal, Amitrajeet & Yoo, Seung Jick, 2019. "Using a Local Public Good to Attract Representative Creative Class Members: The Inefficient Equilibrium Case," MPRA Paper 97841, University Library of Munich, Germany, revised 11 Dec 2019.
    14. Batabyal, Amitrajeet A. & Jick Yoo, Seung, 2020. "Using utilitarian and Rawlsian policies to attract the creative class: A tale of two cities," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 295-300.
    15. Niklas Potrafke & Felix Roesel, 2020. "The urban–rural gap in healthcare infrastructure: does government ideology matter?," Regional Studies, Taylor & Francis Journals, vol. 54(3), pages 340-351, March.
    16. Batabyal, Amitrajeet & Beladi, Hamid, 2021. "On the Existence of an Equilibrium in Models of Local Public Good Use by Cities to Attract the Creative Class," MPRA Paper 105196, University Library of Munich, Germany, revised 07 Jan 2021.
    17. Freier, Ronny & Simmler, Martin & Wittrock, Christian, 2021. "Public good provision and local employment – Evidence from grammar school closures in East Germany," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    18. Batabyal, Amitrajeet, 2020. "How Many Members of the Creative Class Should a City Seek to Attract?," MPRA Paper 107028, University Library of Munich, Germany, revised 18 Feb 2021.

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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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