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The welfare costs of Tiebout sorting with true public goods

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  • Florian Kuhlmey

    (University of Basel)

  • Beat Hintermann

    (University of Basel
    CESifo)

Abstract

We develop a model of Tiebout sorting based on decentralized income taxation, which allows for spillovers and imperfect rivalry in consumption of the publicly provided good. We identify three sources of welfare loss from decentralization: imperfect redistribution, interjurisdictional free-riding, and inefficient residential choice. Whereas the welfare loss from imperfect redistribution decreases and that from free-riding rises unambiguously as the publicly provided good becomes more pure, the welfare loss from the inefficient residential choice depends non-monotonically on spillovers and rivalry. The equilibrium can be characterized by relative crowding of either the rich or the poor municipality. Our results imply that the characteristics of the publicly provided good are an important determinant for the welfare costs of decentralization.

Suggested Citation

  • Florian Kuhlmey & Beat Hintermann, 2019. "The welfare costs of Tiebout sorting with true public goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1166-1210, October.
    • Handle: RePEc:kap:itaxpf:v:26:y:2019:i:5:d:10.1007_s10797-019-09534-z
    DOI: 10.1007/s10797-019-09534-z
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    Cited by:

    1. Florian Kuhlmey, 2022. "Tiebout sorting with progressive income taxation and a fiscal equalization scheme," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-21, December.
    2. Pan, Chen-Yu, 2020. "Protections from natural disasters as local public goods: Migration and local adaptations," Regional Science and Urban Economics, Elsevier, vol. 85(C).
    3. Stephanie Armbruster & Beat Hintermann, 2020. "Decentralization with porous borders: public production in a federation with tax competition and spillovers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 606-642, June.

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    More about this item

    Keywords

    Public goods; Tiebout; Local income taxation; Fiscal federalism; Decentralization; Free-riding;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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