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 3 .

In France, married couples or couples in civil partnerships must declare their resources jointly and are allocated two tax units. This tax system, referred to as the marital quotient, represents a financial package of around 10 billion euros. Using the Ines microsimulation model, we simulate three reforms of this system: an individualisation of taxation, a reduction of marital quotient to 1.5 tax units while allowing married couples/couples in civil partnerships to opt for individual taxation and, finally, the capping of the marital quotient at the same level as the family quotient. Individualisation results in the highest tax gain (around 7 billion), compared with 3.8 billion when the marital quotient is reduced to 1.5 tax units and 3 billion with the marital quotient cap. With these reforms, 46%, 45% and 7% of couples lose out, respectively. The median losses correspond to 1.5%, 1.3% and 2.6% of the disposable income of the households concerned, respectively. Finally, 60%, 64% and 83% of the losses are in the last three standard of living deciles, respectively.

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