The segregative properties of endogenous jurisdiction formation with a land market

This paper examines the segregative properties of Tiebout-like endogenous processes of jurisdiction formation in presence of a competitive land market. In the model considered, a continuum of households with different wealth levels and the same preferences for local public goods, private spending and housing choose a location from a finite set. Each location has an initial endowment of housing that is priced competively and that belongs to absentee landlords. Each jurisdiction is also endowed with a specific technology for producing public goods. Households' preferences are assumed to be homothetically separable between local public goods on the one hand and private spending and housing on the other. Public goods provision is financed by a given, but unspecified, mixture of (linear) wealth and housing taxes. We show that stable jurisdiction structures are always segregated by wealth only if households view any public good conditionally on the quantities of the other public goods as either always a gross substitute, or either always a gross complement, to private spending. We also show that, if there are more than one public good, this condition is not sufficient for segregation unless households preferences are additively separable. Since this condition is necessary and sufficient for the segregation of stable jurisdiction structures without land market and with only one public good, our results suggests that introducing a land market does not affect the segregative properties of endogenous jurisdiction formation but that increasing the number of public goods mitigates segregation.