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How to make the metropolitan area work? Neither big government, nor laissez-faire

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  • GAIGNé, Carl

    (INRA, UMR 1302, SMART Rennes, France; CREATE, Laval University, Canada)

  • RIOU , Stéphane

    (Université de Lyon; Université Jean Monnet, Saint Etienne, France)

  • THISSE , Jacques

    (Université catholique de Louvain, CORE, Belgium; NRU Higher School of Economics, St Petersburg, Russia)

  • ,

Abstract

We study how political boundaries and tax competition among jurisdictions interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, institutional fragmentation and cross-border commuting need not be welfare-decreasing, but the size of the central city matters for welfare. Under tax competition the central business district is too small. Tax competition also prevents public policy enhancing global productivity to produce their full impact. Although our results support the idea of decentralizing the supply of local public services by independent jurisdictions, they also highlight the need of coordinating tax policies.

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  • GAIGNé, Carl & RIOU , Stéphane & THISSE , Jacques & ,, 2013. "How to make the metropolitan area work? Neither big government, nor laissez-faire," LIDAM Discussion Papers CORE 2013065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2013065
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    Cited by:

    1. Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2016. "How to make the metropolitan area work? Neither big government, nor laissez-faire," Journal of Public Economics, Elsevier, vol. 134(C), pages 100-113.
    2. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    3. Wei Tang & Geoffrey J.D. Hewings, 2017. "Do city–county mergers in China promote local economic development?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(3), pages 439-469, July.
    4. Tidiane Ly, 2018. "Sub-metropolitan tax competition with household and capital mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1129-1169, October.
    5. Kauffmann, Albrecht, 2015. "Wie lässt sich die Bevölkerungsentwicklung von Städten korrekt ermitteln? Eine Methode zur Bereinigung amtlicher Daten um die Effekte von Gebietsänderungen am Beispiel von Ostdeutschland," IWH Online 5/2015, Halle Institute for Economic Research (IWH).
    6. ARTIGE, Lionel & CAVENAILE, Laurent & PESTIEAU, Pierre, 2014. "The macroeconomics of PAYG pension schemes in an aging society," LIDAM Discussion Papers CORE 2014033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Yuriy V. Pavlov, 2022. "Systematisation of factors behind the agglomeration effect," Journal of New Economy, Ural State University of Economics, vol. 22(4), pages 116-138, January.
    8. Fitjar, Rune Dahl, 2019. "2019/01 Merging city and suburban governments: A public choice perspective on the Norwegian local government reform," UiS Working Papers in Economics and Finance 2019/1, University of Stavanger.
    9. Yu, Huayi & Hou, Yujuan, 2021. "A tale of two districts: The impact of district consolidation on property values in Shanghai," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    10. Romain Gaté, 2019. "Efficiency of road pricing schemes with endogenous workplace locations in a polycentric city," Working Papers halshs-02335766, HAL.
    11. Baumgart, Eike & Blaufus, Kay & Hechtner, Frank, 2023. "The tax treatment of commuting expenses and job-related mobility," arqus Discussion Papers in Quantitative Tax Research 280, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Dong, Xuebing & Miao, Binbin & Chi, Ruonan, 2023. "Capital flows under integration: Evidence from China's metropolitan area development planning," China Economic Review, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    metropolitan area; fiscal competition; local labor markets; suburbanization; administrative boundary; economic boundary;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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