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Financing productive local public goods

By Gilles Duranton and Stéphane Déo

Abstract

Public economics typically assumes that local public goods only affect the utility of consumers. We analyze the case of purely productive local public goods within standard growth models. Investment in the public good enhances productivity only in the jurisdiction where it takes place. Capital, as well as people, is perfectly mobile. After characterizing the first-best equilibrium, we show that its decentralization to fiscally independent jurisdictions is more demanding than with local public consumer goods. In particular, efficient decentralization cannot be obtained with competitive land developers providing the public good through a simple land capitalization scheme

Topics: G Geography (General)
Publisher: Elsevier
Year: 1999
DOI identifier: 10.1006/juec.1998.2097
OAI identifier: oai:eprints.lse.ac.uk:7266
Provided by: LSE Research Online
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