The Effect of Spillovers and Congestion on the Segregative Properties of Endogenous Jurisdiction Structure Formation

Abstract

This paper analyzes the eect of spillovers and congestion of local public goods on the segregative properties of endogenous formation of jurisdiction structure. We consider a local public good model based on Tiebout intuitions. Households living in the same place form a jurisdiction and produce a local public good. In every jurisdiction, the local public good is nanced through a local tax on household’s wealth. Local wealth tax rates are democratically determined in all jurisdictions. Households also consume housing in their jurisdiction. The housing prices are competitive, which means that, in every jurisdiction, the demand of land from households who choose to locate there is equal to the amount of housing supplied by the absentee landlords. Households may change their location, and then housing prices may be modied too. We prove that, for any production function of local public good and any coecients matrix of local other jurisdiction’s public good spillovers, the condition identied by Gravel and Thoron (2007) remains necessary and sucient to have every stable jurisdiction structure segregated by wealth.