Why cities should not be subsidized

Fenge, Robert; Meier, Volker (2002): Why cities should not be subsidized. In: Journal of Urban Economics, Vol. 52, No. 3: pp. 433-447

Abstract

The paper deals with the question of whether fiscal transfers received by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > Chair for Public Economics
• Subjects: 300 Social sciences > 330 Economics
• Language: English