A dynamic tiebout theory of voluntary vs. involuntary provision of public goods

This paper considers a dynamic model of Tiebout-like migration between comm unities that utilize distinct allocation procedures for public goods. At is sue is whether voluntary or compulsory procedures are more likely to prevai l over time. We model infinitely lived individuals who make repeated, seque ntial location decisions over one of two communities. Each community uses a distinct mechanism for allocating public goods. The first is one in which contributions are given voluntarily by the citizenry of the community. The second is a compulsory scheme by which individuals are taxed proportionatel y to wealth with the tax determined by a majority vote. Opportunities to ac cumulate wealth exist via accumulation of public capital. The Markov Perfect equilibria of the dynamic game are studied. Our main res ult shows that when accumulated wealth converges to a steady state, individ uals' locational choices eventually "select" the involuntary provision mech anism. This holds despite the fact that unanimous location in the voluntary provision community may in many cases remain as a Nash equilibrium of the static game each period. We also describe conditions under which voluntary provision survives. These conditions require that accumulation of capital f ails to decrease wealth dispersion over time. The results are shown to be c onsistent with findings relating inequality to school choice.