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Why cities should not be subsidized

Robert Fenge; Volker Meier
The paper deals with the question of whether fiscal transfers re-ceived by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.
Year of publication:
2001
Authors: Fenge, Robert ; Meier, Volker
Publisher: München : CESifo
Subject: interjurisdictional transfers | congestion | publicly provided goods | Theorie | Theory | Engpass | Bottleneck | Finanzausgleich | Intergovernmental transfers | Öffentliche Güter | Public goods | Lokale öffentliche Güter | Local public goods | Wohlfahrtsanalyse | Welfare analysis | Agglomerationseffekt | Agglomeration effect | Stadtgröße | City size | Bevölkerungsdichte | Population density
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