On the Segregative Properties of Endogenous Jurisdiction Formation with a Central Government

This paper examines the segregative properties of endogenous processes of jurisdiction formation à la Tiebout in the presence of a central government who redistributes income across jurisdictions by maximizing a welfarist objective. Choices of location by households of local public good provision by jurisdiction and of redistribution by the central government are assumed to be made simultaneously, taking the choices of others as given. Two welfarist objectives for the central government are considered in turn: Leximin and Utilitarianism. If the central government pursues a Leximin objective, it is easily shown that the only stable jurisdiction structure that can emerge is essentially the trivial one in which all households live in the same jurisdiction. Richer classes of stable jurisdiction structures are compatible with a central utilitarian government. Yet, it happens that, if individual preferences are additively separable, the class of preferences that garantee the segregation of any stable jurisdiction structure remains unchanged by the presence of a central government.