SFB 303 Discussion Paper No. A - 566

Author: Kessler, Anke, and Lülfesmann, Christoph
Title: Tiebout and Redistribution in a Model of Residential and Political Choice
Abstract: The paper considers a multi-community model with freely mobile individuals which differ (a) in their incomes and (b) their tastes for a local public good. In each jurisdiction, the amount of public services is determined by majority vote of the inhabitants, and local spending is financed by a residence-based linear income tax. In making their residential and political choice, individuals thus face a trade-off between the provisionary and redistributive effects of policies. We show that Tiebout-like sorting equilibria exist in this framework, which contrasts a recent result by Bolton and Roland (1996). If the spread in tastes among individuals is very large, an almost perfect sorting according to preferences emerges; otherwise, stratification into rich and poor communities is more pronounced. Finally, we demonstrate that sorting equilibria even exist if individuals are allowed to relocate after voting, which gives rise to tax competition aspects.
Keywords: Local Public Goods, Migration, Fiscal Federalism
JEL-Classification-Number: H71, H73
Creation-Date: December 1997
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