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John P. Conley, Robert Driskill and Ping Wang
''Capitalization, Decentralization, and Intergenerational Spillovers in a Tiebout Economy with a Durable Public Good''
We consider an overlapping generations model with a Durable Local Public Good (DLPG). We establish a Tiebout Theorem (equilibrium exists and is first best) as well as a Second Welfare Theorem in this dynamic DLPG economy. We conditions under which local provision of durable public goods results in the full internalization of the intergenerational spillovers that durability entails. In contrast, when durable public goods are provided by the national government, internalization does not take place and underprovision of public goods results. This sets up an institutional tradeoff between national and local provision of public goods that balances the relative strength of intergenerational and interjurisdictional spillovers.
Keywords: Durable Local Public Goods, Capitalization and Intergenerational Spillover E¤ects, Dynamic Tiebout Equilibrium, Welfare Analysis.
JEL: H4 - Publicly Provided Goods: General
D9 - Intertemporal Choice and Growth: General
Manuscript Received : Jan 10 2017 Manuscript Accepted : Jan 10 2017

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