The effect of spillovers and congestion on the segregative properties of endogenous jurisdictions formation*

This paper analyzes the eect of spillovers and congestion of local public services on the segregative properties of endogenous formation of jurisdictions. Households choosing to live at the same place form a jurisdiction whose aim is to produce congested local public services, that can create positive spillovers to other jurisdictions. In every jurisdiction, the production of the local public services is nanced through a local tax based on households' wealth. Local wealth tax rates are democratically determined in all jurisdictions. Households also consume housing in their jurisdiction. Any household is free to leave its jurisdiction for another one that would increase its utility. A necessary and sucient condition to have every stable jurisdictions structure segregated by wealth, for a large class of congestion measures and any spillovers coecients structure, is identied: the public services must be either a gross substitute or a gross complement to the private good and the housing.