Keywords: Local Public Goods, Migration, Fiscal Federalism
JEL--Classification: H71, H73
The paper considers a
multi-community model with freely mobile individuals which differ (a)
in their incomes and (b) their tastes for a local public good. In
each jurisdiction, the amount of public services is determined by
majority vote of the inhabitants, and local spending is financed by a
residence-based linear income tax. in making their residential and
political choice, individuals thus face a trade-off between the
provisionary and redistributive effects of policies. We show that
Tiebout-like sorting equilibria exist in this framework. If the spread
in tastes among individuals is very large, an almost perfect sorting
according to preferences merges; otherwise, stratification into rich
and poor communities is more pronounced. Finally, we demonstrate
that sorting equilibria even exist if individuals are allowed to
relocate after voting, which gives rise to tax competition aspects.
Copyright © Anke Kessler