Essays in Local Public Finance

The first essay, "Producers and Predators in a Multiple Community Setting" investigates how different ways of organizing the provision of local policing services in a multi-community setting affect the level of criminal activity, the spatial distribution of the population, the cost of policing, and overall productivity across all communities. Our analysis shows that if individual local governments are boundedly rational, in the sense that they do not anticipate the effects of their own defense activity on the equilibrium predator/producer ratio and distribution of producer activity, then competition among local governments never achieves a first-best outcome and sometimes yields a lower consumption per capita in equilibrium than would be achieved if there were no local governments and each agent who chose to be a producer also chose his own level of defense. The second essay, "Discriminatory Taxation in a Model of Local Community Competition," analyzes tax competition for new economic resources among local communities within the context of a dynamic, overlapping generations model. We show that in a simple model of discriminatory tax competition, allowing communities to compete for new entrants via the use of entry bonuses and entry taxes does not produce a 'race to the bottom,' does not reduce overall efficiency, and can prevent the economy from getting stuck in an inefficient allocation of resources across communities. The third essay, "A Note on the Effects of Tax Increment Financing on the Path of Land Development," shows that TIFs introduce distortions in the early use of property even as they reduce tax distortions on later use of property. The net effect of a TIF on the dynamic efficiency of land use depends on the magnitude of the TIF subsidy.