Taxation, Redistribution, and Provision of Public Services in a System of Jurisdictions with Mobile Citizens

Princeton University, Princeton NJ

Investigators

Abstract

It has long been recognized that actual and potential movement of households and factors of production across jurisdictional boundaries may have a significant impact on the politics and policy choices of subnational governments. Analysis of public good provision is increasingly based on models that characterize self-selection of citizens into municipalities and collective choice via majority rule within municipalities. This project combines a theoretical framework of interjurisdictional sorting with a newly-developed empirical strategy that takes sorting effects into account. The theoretical model yields strong predictions about the distribution of households by income within and across jurisdictions. These distributions can be; matched with empirical income distributions observed in a sample of communities. The key methodological insight is that matching income distributions allows us to characterize boundary indifference loci of adjacent communities, as well as loci of pivotal voters within each community in locational equilibrium. The estimator proposed here controls for both observed and unobserved heterogeneity among households, observed and unobserved characteristics of communities, the potential endogeneity of prices and expenditures and the self-selection of households into communities of their choice. The structural parameters of the model are estimated using data of the Boston Metropolitan Area and the project extends the analysis to other settings. The extent to which mobility constrains the choices of a jurisdiction depends not only on actual mobility, but also on how political actors or citizens perceive the impact of mobility on their communities. The project formulates and tests various hypotheses about voter behavior, with special focus on the extent to which voters in a community take mobility by others into account when making political decisions. The project also investigates the importance of clustering in communities by income or other characteristics, such as race or ethnicity.