This Town Ain't Big Enough? Quantifying Public Good Spillovers

Nicolas Jannin and Aurelie Sotura

Working papers from Banque de France

Abstract: Despite long-standing theoretical interest, empirical attempts at investigating the appropriate level of decentralization remain scarce. This paper develops a simple and flexible framework to test for the presence of public good spillovers between fiscally autonomous jurisdictions and to investigate potential welfare gains from marginal fiscal integration. We build a quantitative spatial equilibrium model with many local jurisdictions, mobile households and endogenous local public goods causing spillovers across jurisdictional boundaries. We show how one can exploit migration and housing price responses to shocks in local public goods at different geographic scales to reveal the intensity of spillovers. Applying our framework to the particularly fragmented French institutional setting, we structurally estimate the model using a unique combination of municipal administrative panel datasets. Estimation relies on plausibly exogenous variations in government subsidies to instrument changes in the supply of public goods. We find that public goods in a municipality account for 4--11\% of the local public good bundle enjoyed by its residents, and that public goods in each neighbor municipality account for an average 3.2--3.5\% of this bundle. Finally, we simulate the effect of a reform increasing fiscal integration and find substantial welfare gains.

Keywords: Local Public Service; Spillover Effect; Spatial General Equilibrium; Tiebout; Welfare Economics; State Governments Subsidies (search for similar items in EconPapers)
JEL-codes: D16 H41 H71 H72 H73 R13 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2020
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... ocuments/wp796_0.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:796

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().