ATTACHMENT TO HOME AND EFFICIENT PURCHASES OF POPULATION IN A FISCAL EXTERNALITY ECONOMY

This paper examines the efficiency properties of an economy characteri zed by strategically competing regions and individuals with varying de grees of attachment to home, in an otherwise standard fiscal externali ty setting. Regional authorities may make interregional transfers in p urchasing preferred populations. However, there is a range of distribu tions of resources over which neither region makes transfers. Neverthe less, all equilibrium allocations resulting from the Nash behavior of regional authorities, including those that involve no transfers, are e fficient. Therefore, in contrast to the standard conclusions of the fi scal externality literature, there is no efficiency role for a central authority.