Revisiting the Micro-Foundations of the Tiebout Theory of Local Expenditures: Are Private Community Amenities Substitutes for Local Public Services in Residential Choices?

Abstract

Tiebout's theory of local expenditures predicts the efficient provision of local tax and expenditure bundles via market forces occur when individuals “vote with their feet” (Tiebout 1956). Private amenity choices may distort market signals to local governments. Thus we conduct a conjoint experiment to explore how citizens make choices among hypothetical apartment homes, varying public and club good attributes. This allows us to vary both apartment community and city amenities independently to determine whether private club or public amenities are more influential in shaping residency choices. Regardless of the quality of city services, citizens on average are willing to pay for an additional layer of safety provided by an apartment complex. We conclude that the city's tax expenditure bundle is not the only consideration in residential location choice, suggesting that there is disruption in the efficient provision of public goods.