On the decentralized provision of public goods with spillovers in the presence of household mobility

Abstract

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Cultural Identity, Mobility, and Decentralization

“…It is the combination of assuming a) asymmetric utility effects of social capital on natives and non-natives and b) large regions instead of small regions, that in the end causes the result of inefficient decentralized public good supply. 39 Note that these externalities are of a different nature than those discussed in Wellisch (1994). 40 At least as long as the probability distribution of the regional income shock is symmetric or positively skewed, and has no strict inner minima.…”

“…This is true irrespective of whether we look at small regions or large regions. 38 It is also interesting to compare this result of inefficient good supply to another setting in the literature: Wellisch (1994) shows that exogenous attachment to home and interregional spillover effects of public goods together lead to inefficiency, while in our model, without assuming exogenous mobility constraints, the local public good "social capital", due to its specific characteristics, endogenously generates both imperfect mobility and externalities, 39 with the result of public good provision being inefficient.…”

“…Decentralized local public consumption good supply will be efficient if lump-sum and property taxes are available, as in our model, and if there is perfect mobility (Myers (1990)). This holds even if there are public good spillovers (see Wellisch (1993)). If, however, there is attachment to home and thus imperfect mobility, the public good supply in at least one region is inefficient (Wellisch (1994)).…”

“…This holds even if there are public good spillovers (see Wellisch (1993)). If, however, there is attachment to home and thus imperfect mobility, the public good supply in at least one region is inefficient (Wellisch (1994)). In our model, immobility is not exogenously given, but the publicly provided good, that is regional culture, creates mobility costs (i.e.…”

“…Myers (1990) however has shown that this result critically hinges on restrictive assumptions regarding the regional non-availability of lump-sum personal and property taxes and immobility of citizens: If lump-sum personal and property taxes are available and citizens are freely mobile, decentralized local public good provision will indeed be efficient. The literature has further qualified this result (see Wellisch (1993), Wellisch (1994)), however, it has so far only considered "culturally neutral" public goods, i.e. public goods that benefit native and non-native citizens equally.…”