Mobility and Capitalization in Local Public Finance: A Reassessment

Abstract

We examine models of local public finance in which separated communities offer different development packages and agents choose among these. We challenge the prevailing view that mobility of agents imposes the correct development incentives on communities through effects on land values. We develop an alternative theory of migration incentives and show that it generates an incentive to overdevelop in that it leads to communities that are too congested relative to a first best ideal.

JEL Classification: H70