SFB 303 Discussion Paper No. A - 542

Author: Hansen, Nico A.
Title: (Non-) Existence of Equilibria in the Provision of Local Public Goods with Voting
Abstract: This paper assesses recent literature on multi-community models with voting over local public goods. We show that the stratification equilibrium - with sorting of the population according to income classes - is not as natural as sometimes suggested. Under the general structure of multi-community models (perfect mobility, single crossing properties, majority voting), without either ad-hoc nonconvexities, tight housing markets or degenerate income distribution functions, no stratification equilibrium exists. Equilibria display opposite characteristics: policies as well as per capita incomes in all jurisdictions are exactly the same, although individual preferences over policies differ between income classes. In this sense, equilibria display convergence and not divergence in important economic variables.
Keywords: Local Public Goods, Income Taxation, Migration, Fiscal Federalism
JEL-Classification-Number:
Creation-Date: January 1997
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