Kiel Working Papers, Kiel Institute for World Economics
No 942:
Local Public Goods, Adaptive Migration Decisions and Agglomerative Bias
Andreas Kopp
Abstract: We study a model in which heterogeneous consumers or
potential migrants face uncertainty with respect to the equilibrium fiscal
policies of individual communities. Following standard criteria of
empirical relevance of local public finance analysis, our model has the
following characteristics:
Government policies are determined in a
political process, by majority voting. The empirical importance of local
property taxes is taken account of by incorporating a land market and by
the assumption that the provision of local public goods is financed by a
property tax. Preferences of consumers are not only expressed by voting but
also by decisions on residential locations. The number of jurisdictions is
fixed and given, and there are relocation costs. The latter assumptions
imply that changes in voting equilibria and the consequent changes of
fiscal policies implemented in one jurisdiction do not leave the utility
levels of other communities unaffected.
To take account of the limited
information collection and processing possibilities of individuals,
migration decisions are modeled to be based on a non-sophisticated method
of estimating the future distribution of voting equilibria across
jurisdictions. It is shown that using the stochastic stability equilibrium
concept the claims raised by Tiebout in his seminal article on
jurisdictional competition are easier to maintain than in a model of
rational behavior.
47 pages, July 1999
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