State preemption laws strictly limit local governments from regulating beyond their borders. Local governments, however, face a broad spectrum of challenges which cannot be confined to municipal borders. These challenges freely flow in and out of many local jurisdictions at the same time. The...

Tiebout's (1956) model of fiscal competition suggests income sorting between jurisdictions while the Alonso (1964), Mills (1967) and Muth (1969) model of the monocentric city suggests income sorting over space. However, strict income sorting is not empirically observed. We add fiscal competition...

A circular metropolitan area consists of an inner city and a suburb. Households sort over the two jurisdictions based on public service levels and their costs of commuting to the metropolitan center. Using numerical simulations, we show (1) there typically exist two equilibria: One in which the...

We seek to explain the stylized fact that poor households form the majority in the inner city of most American metropolitan areas. Using numerical simulations, we show that (1) typically there exist two equilibria: One in which the poor form the majority in the inner city and the other in which...

We examine the effect of interstate differences in income taxes on commuting times. Our theoretical model introduces a border into a model of an urban area and shows that differences in average tax rates distort commuting patterns, but the sign of the effect depends on whether taxes are...

Despite the large impact institutions have on the allocation of population, it remains an open question which institutions produce an efficient allocation of people across cities. Due to agglomeration, differences in amenities, and congestion, cities experience decreasing returns to population...

When regions in close proximity have different tax rates, residents may engage in cross-border shopping and take advantage of tax differentials. The extent of this activity can be captured by the tax elasticity of border sales (TEBS). We collect 749 estimates of TEBS reported in 60 studies, and...

Using the German local business tax as a testing ground, we empirically investigate the impact of firm agglomeration on municipal tax setting behavior. The analysis exploits a rich data source on the population of German firms to construct detailed measures for the communities' agglomeration...

Borders create a discontinuous tax treatment of retail sales. In a Nash game, equilibrium local tax rates will be higher on the low-tax side of a border. Taxes will decrease from the nearest high-tax border and increase from the nearest low-tax border. Using driving time from state borders and...