The welfare costs of Tiebout sorting with true public goods

Florian Kuhlmey and Beat Hintermann
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Florian Kuhlmey: University of Basel

International Tax and Public Finance, 2019, vol. 26, issue 5, No 8, 1166-1210

Abstract: 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.

Keywords: Public goods; Tiebout; Local income taxation; Fiscal federalism; Decentralization; Free-riding (search for similar items in EconPapers)
JEL-codes: H21 H23 H41 H77 Q58 R13 R23 R50 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Working Paper: The Welfare Costs of Tiebout Sorting with True Public Goods (2018)
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DOI: 10.1007/s10797-019-09534-z

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