City Competition for the Creative Class

40 Pages Posted: 16 Oct 2013

See all articles by Thiess Buettner

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 16, 2013

Abstract

This paper explores the conditions under which decentralization and fiscal competition lead to a policy of subsidizing cultural activities. A theoretical analysis discusses these subsidies as a form of local public good provision which makes a city more attractive to highly educated individuals. The analysis shows that the incentive to provide the public good is particularly strong, if institutional restrictions prevent local governments from adjusting their tax structure. An empirical analysis considering the case of public theaters in Germany supports the view that public subsidies attract highly educated individuals and capitalize in the earnings of workers with basic education. Given institutional restrictions, the empirical effects suggest that local jurisdictions face a substantial fiscal incentive to subsidize cultural activities.

Keywords: fiscal competition, creative class, cultural amenities, theater subsidies, tax autonomy, capitalization, individual earnings

JEL Classification: H200, H410, R130

Suggested Citation

Buettner, Thiess and Janeba, Eckhard, City Competition for the Creative Class (October 16, 2013). CESifo Working Paper Series No. 4417. Available at SSRN: https://ssrn.com/abstract=2340932

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nürnberg, Bavaria 90403
Germany

Eckhard Janeba (Contact Author)

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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