Public Finance, 2nd Edition

30

OPTIMAL FEDERALISM:

THE SORTING OF PEOPLE WITHIN

THE FISCAL HIERARCHY

THE MODELING DIMENSIONS

JURISDICTION FORMATION IN ACCORDANCE WITH THE

THEORY OF CLUBS

Reaching the Optimum

FIXED COMMUNITIES AND HOUSING SITES: ADDING THE

HOUSING MARKET

The Pauly Model of the Housing Market

The Hohaus-Konrad-Thum Model of Housing Market Distortion

Empirical Evidence of Public Services Capitalization

ANYTHING IS POSSIBLE

The Stiglitz Model

MOBILITY AND REDISTRIBUTION

The Brown-Oates Model

Uncertain Incomes

The Epple-Romer Model of Redistribution

For a given distribution of the population throughout a nation, it is a

reasonably simple exercise to deWne various examples of externalities and

decreasing costs over subsets of the entire population and then describe an

optimal set of local jurisdictions that can correct these problems in an optimal

manner. But there remains the important question of whether people will

naturally group into subsets congruent with the set of local jurisdictions

required for a social welfare optimum.

Charles Tiebout,

1

the founding father of the mobility literature, was

optimistic about federalism. He conjectured that the jurisdictions would

form as required. Tiebout argued that the great advantage of federalism

1

C. Tiebout, ``A Pure Theory of Local Expenditures,'' Journal of Political Economy,

October 1956. Tiebout's article is the seminal work, the Wrst to consider the gains from local

jurisdictions in a neoclassical framework.

855