Working Paper: NBER ID: w1919
Authors: Joseph Gyourko; Joseph Tracy
Abstract: In this paper we examine the political economy. of capitalization in a Tiebout model when there is a rent-seeking public bureaucracy. A new approach is suggested for testing for the influence of successful local public sector rent-seeking on local property values. We present empirical evidence showing that property values are lower in cities which pay their public sector workers significantly more than similar public sector workers earn in other cities. Finally, we discuss how the regulatory process can be used to distribute rents arising from a short-run Tiebout disequilibrium to landowners, public sector workers, and renters.
Keywords: Tiebout model; land value capitalization; public sector rent-seeking; urban economics
JEL Codes: H41; R52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public sector wages (J45) | Property values (R33) |
| Higher public sector wages (J45) | Lower property values (R31) |
| Bureaucratic rent-seeking (D73) | Property values (R33) |
| Rent-seeking by public sector employees (J45) | Decrease in property values (H13) |
| Public sector wages (J45) | Effective level of public services (H49) |
| Effective level of public services (H49) | Property values (R33) |