THE PROVISION OF LOCAL PUBLIC-GOODS AND FACTORS IN THE PRESENCE OF FIRM AND HOUSEHOLD MOBILITY

This paper studies the efficiency properties of allocations when firms and households are mobile and when local governments provide local pu blic goods and local public factors. The analysis differentiates betwe en immobile land owners and perfectly mobile workers and concludes tha t an efficient allocation is obtained if there is no outflow of land r ents to absentee owners. If rents flow out, only local public goods ar e supplied in accordance with the Samuelson Rule. The provision of loc al public factors is inefficiently low, however, and jurisdictions tax mobile firms and mobile households inefficiently high in order to res trict the outflow of rents. An optimal intervention scheme is derived in this case. We also analyze the distortions that result when the non -availability of local head taxes makes it impossible to internalize c rowding costs.