Working Paper: CEPR ID: DP9499
Authors: Carl Gaign; Stéphane Riou; Jacques-François Thisse
Abstract: We study how political boundaries and fiscal competition interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, institutional fragmentation need not be welfare-decreasing, and commuting from the suburbs to the central city is not wasteful. Thus, the institutional and economic limits of the central city do not coincide at the social optimum. Under tax competition, the central business district is too small. The dispersion of jobs is increased when suburbanite workers consume the public services supplied by the central city. This indicates the need for some metropolitan governance.
Keywords: administrative boundary; economic boundary; fiscal competition; local labor markets; metropolitan area; suburbanization
JEL Codes: H41; H71; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| institutional fragmentation in metropolitan areas (R23) | welfare outcomes (I38) |
| commuting from suburban areas to the central city (R23) | costs on workers (J32) |
| tax competition (H26) | size of the central business district (CBD) (R12) |
| size of the central business district (CBD) (R12) | job dispersion (J63) |
| suburban workers benefiting from public services in the central city (R23) | misallocation of resources (D61) |
| misallocation of resources (D61) | quality of public services and wages for central city residents (J45) |
| optimal size of jurisdictions (H73) | commuting costs, agglomeration economies, and population size (R12) |