How to Make the Metropolitan Area Work? Neither Big Government, Nor Laissez-Faire
41 Pages Posted: 22 Apr 2013
Date Written: April 2013
We study how political boundaries and fiscal competition interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, institutional fragmentation need not be welfare-decreasing, and commuting from the suburbs to the central city is not wasteful. Thus, the institutional and economic limits of the central city are not the same. With tax competition, the central business district is too small. The dispersion of jobs is increased when suburbanite workers are allowed to consume the public services supplied by the central city. This indicates the need for some metropolitan governance.
Keywords: metropolitan area, fiscal competition, local labor markets, suburbaniza- tion, administrative boundary, economic boundary
JEL Classification: H41, H71, R12
Suggested Citation: Suggested Citation