Local Public Good Provision, Municipal Consolidation, and National Transfers

29 Pages Posted: 25 Jul 2007

See all articles by Robert Dur

Robert Dur

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Klaas Staal

Institute for International Economic Policy (IIW), University of Bonn

Date Written: July 2007

Abstract

We analyze a simple model of local public good provision in a region comprising two districts, a city and a village. When districts remain autonomous and local public goods have positive spillover effects on the neighboring district, there is underprovision of public goods in both the city and the village. When districts consolidate, underprovision persists in the village (and may become even more severe), whereas overprovision of public goods arises in the city as urbanites use their political power to exploit the villagers. From a social welfare point of view, inhabitants of the village have insufficient incentives to vote for consolidation. We examine how national transfers to local governments can resolve these problems.

Keywords: local public goods, municipal consolidation, voting, intergovernmental transfers, tax discrimination

JEL Classification: D7, H2, H7, R5

Suggested Citation

Dur, Robert and Staal, Klaas, Local Public Good Provision, Municipal Consolidation, and National Transfers (July 2007). CESifo Working Paper No. 2061, Available at SSRN: https://ssrn.com/abstract=1002870 or http://dx.doi.org/10.2139/ssrn.1002870

Robert Dur (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

FEW / H 8-15
P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31-10-4082159 (Phone)
+31-10-4089161 (Fax)

HOME PAGE: http://people.few.eur.nl/dur

Tinbergen Institute

Amsterdam/Rotterdam
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Klaas Staal

Institute for International Economic Policy (IIW), University of Bonn ( email )

Lennestr. 37
Bonn, 53113
Germany
+49(0)228 731885 (Phone)

HOME PAGE: http://www.iiw.uni-bonn.de/people/staal/index.html

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