Optimal Formation of Local Public Goods Economies
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The topics of optimal community formation has been studied widely since the seminal paper by Tiebout (1956). Most models proposed have focused on the community formation in which the public good provision is exogenously given or determined by simple tax schemes like proportional tax or (lump sum) head taxes. In order to study the efficiency of local community formation, however, we employ the optimal feasible tax scheme by Rhee (2008, 2012), where the provision of public good is determined endogenously through property taxes. We compare the social welfare between homogeneous formation for which each local community consists of agents with same publicly observable characteristics, e.g., ethnicity and/or occupation, and heterogeneous formation for which each local community consists of agents with different observable characteristics. The comparison shows that as the expected endowment of the economy gets higher, homogeneous formation is more likely to be optimal, while otherwise heterogeneous formation is more likely to be optimal. This result reflects the trade-off between the informational rent and the quantity of public good provided
Abstract
The topics of optimal community formation has been studied widely since the seminal paper by Tiebout (1956). Most models proposed have focused on the community formation in which the public good provision is exogenously given or determined by simple tax schemes like proportional tax or (lump sum) head taxes. In order to study the efficiency of local community formation, however, we employ the optimal feasible tax scheme by Rhee (2008, 2012), where the provision of public good is determined endogenously through property taxes. We compare the social welfare between homogeneous formation for which each local community consists of agents with same publicly observable characteristics, e.g., ethnicity and/or occupation, and heterogeneous formation for which each local community consists of agents with different observable characteristics. The comparison shows that as the expected endowment of the economy gets higher, homogeneous formation is more likely to be optimal, while otherwise heterogeneous formation is more likely to be optimal. This result reflects the trade-off between the informational rent and the quantity of public good provided
참고문헌 (14)
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