Fiscal Inequivalence, Incentive Equivalence and Pareto Efficiency in a Decentralized Urban Context

We develop a simple urban model consisting of a center and a suburb, populated by a fixed number of identical individuals who can migrate costlessly between jurisdictions. Land ownership ranges from rent sharing to an absentee landlord who owns all urban land. We discuss laissez-faire equilibrium and show that it is Pareto efficient. We then introduce local governments which are only concerned about the welfare of their residents, and which can …