How to Make the Metropolitan Area Work? Neither Big Government, Nor Laissez-Faire

42 Pages Posted: 6 Jun 2013

See all articles by Carl Gaigne

Carl Gaigne

French National Institute for Agricultural Research (INRA) - UMR 1302 SMART

Stephane Riou

GATE Lyon-Saint-Etienne

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2013

Abstract

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 do not coincide at the social optimum. Under tax competition, the central business district is too small. The dispersion of jobs is increased when suburbanite workers consume the public services supplied by the central city. This indicates the need for some metropolitan governance.

Keywords: administrative boundary, economic boundary, fiscal competition, local labor markets, metropolitan area, suburbanization

JEL Classification: H41, H71, R12

Suggested Citation

Gaigne, Carl and Riou, Stephane and Thisse, Jacques-François, How to Make the Metropolitan Area Work? Neither Big Government, Nor Laissez-Faire (June 2013). CEPR Discussion Paper No. DP9499. Available at SSRN: https://ssrn.com/abstract=2275152

Carl Gaigne (Contact Author)

French National Institute for Agricultural Research (INRA) - UMR 1302 SMART ( email )

4 allée Adolphe Bobierre
CS 61103
Rennes Cedex, 35011
France

Stephane Riou

GATE Lyon-Saint-Etienne ( email )

34, rue Francis Baulier
Saint-Etienne, 42023
France

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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