We examine the density-functional theory of macroscopic insulators, ob
tained in the large-cluster limit or under periodic boundary condition
s. For polar crystals, we find that the two procedures are not equival
ent. In a large-cluster case, the exact exchange-correlation potential
acquires a homogeneous ''electric field'' which is absent from the us
ual local approximations, and the Kohn-Sham electronic system becomes
metallic. With periodic boundary conditions, such a field ist forbidde
n, and the polarization deduced from Kohn-Sham wave functions is incor
rect even if the exact functional is used.