testing capital structure models on philippine listed firms this study examines the ability of the trade off to model and the pecking order po model to explain the financing behaviour of philippine listed firms from 1990 to 2001 using panel data regression techniques the firms leverage ratios move towards their optimal level holding up the to model the results however show better support for the po model as leverage and profitability are negatively related while financing deficit mostly explains the annual change in total liabilities furthermore in joint tests only the fitted values from the po model equation continue to have additional explanatory power over fitted values from the to model firms issued more equity than debt from 1990 to 1996 when stock market prices were increasing rapidly but this still fits the more complex version of the po model

the ramsey problem for congestible facilities abstract in recent years a new set of models drawing on vickrey 1969 has been developed to analyze the economics of congestible facilities these models are structural in that they derive the cost function from consumers time of use decisions and the congestion technology standard models in contrast simply assume the general form of the cost function we apply the new approach to analyze the ramsey problem for a congestible facility and show that the solution generally entails cost inefficiency standard models have failed to reveal this result because they treat the cost function as completely determined by technology

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

a test for efficiency in the supply of public education this paper devises and applies a statistical test for efficient provision of local public education the test is based on the samuelson condition of equality between the sum of marginal rates of substitution and marginal cost the econometric method is a micro based approach to the estimation of the marginal rate of substitution function this method accounts for possible tiebout bias caused by the fact that individuals may choose their school districts in accordance with their tastes for education

anonymous lindahl pricing in a tiebout economy with crowding types the crowding types model of a local public goods economy makes a distinction between crowding effects and tastes of agents decentralization of the core is possible both with anonymous admission prices that depend only on publicly observable information and when technology is linear with lindahl per unit prices lindahl price systems are superior to admission prices since they can be specified with only a finite number of prices here we show that the core is equivalent to the set of non anonymous lindahl equilibria even with non linear technology the core is generally larger however than the set of anonymous lindahl equilibria

residential choice and the supply of local public goods abstract this paper deals with the supply of local public goods in an agglomeration consisting of a central city and a given number of suburban communities the properties of an equilibrium under free mobility are studied in particular a community s population size level of public good and public spending are analyzed as a function of distance to the central city an extension analyzes an equilibrium with two income classes and the corresponding income location pattern

note comment and letter to the editorsustainable oligopolies in this paper we show that an oligopoly market where both increasing returns to scale and competition are present can nevertheless satisfy stability conditions in a sustainable oligopoly 1 each consumer chooses the firm which proposes the price quality schedule he prefers 2 firms earn non negative profits 3 no new firm could attract consumers and make profits we prove that such a sustainable oligopoly exists under rather weak assumptions the results apply to most models of vertical or horizontal product differentiation or to models of quality differentiation due to congestion effects

inefficiencies from metropolitan political and fiscal decentralization failures of tiebout competition we examine the welfare effects of provision of local public goods in an empirically relevant setting using a multi community model with mobile and heterogeneous households and with flexible housing supplies we characterize the first best allocation and show efficiency can be implemented with decentralization using head taxes we calibrate the model and compare welfare in property tax equilibria both decentralized and centralized to the efficient allocation inefficiencies with decentralization and property taxation are large dissipating most if not all the potential welfare gains that efficient decentralization could achieve in property tax equilibrium centralization is frequently more efficient an externality in community choice underlies the failure to achieve efficiency with decentralization and property taxes poorer households crowd richer communities and free ride by consuming relatively little housing thereby avoiding taxes copyright oxford university press

individual production community characteristics and the provision of local public services abstract socioeconomic variables reflect differences in individual production functions for such commodities as a personal safety or education where both private goods and community characteristics are inputs to this production government activities are demanded because of their direct impact on community characteristics and indirect contribution to production since each activity affects many characteristics efficient provision depends upon the proper consideration of the cross effects of community activities on characteristics because production functions may differ across demographic groups efficient provision depends upon community demographics and heterogeneity in equilibrium may result a method for indexing public services using community characteristics is suggested allowing the isolation of movements in prices and quantities from expenditure data

tiebout with politics capital tax competition and constitutional choices this paper examines how capital tax competition affects jurisdiction formation we describe a non cooperative locational model of public goods provision choices where the levels of taxation and the local public good varieties provided within jurisdictions are selected by majority voting and where equilibrium jurisdictions consist of consumers with similar tastes we show that interjurisdictional tax competition results in an enlargement of jurisdictional boundaries and even in the absence of intrajurisdictional transfers can raise welfare for all members of a jurisdiction

the economic case for limits to government in june of 1978 the voters of california approved proposition 13 restricting the rate of local property taxation to no more than 1 percent of 1975 market values in november 1978 the voters of michigan approved the headlee amendment which limited state revenues from own sources to a fixed share of state personal income in november of 1980 massachusetts voters followed the lead of california and required all cities and towns to limit their taxation to a rate of 22 percent of full and fair cash value numerous hypotheses have been advanced and analyzed to explain the emergence of these new restrictions on fiscal choice the results point to two explanations voters feel governments are too big providing more services than what they prefer or governments spend too much on redistributive activities to help the poor and through higher wages to help public employees themselves the response to this perceived failure of government has been to propose and in california michigan and massachusetts to approve absolute limits to government expenditures the question i wish to address here is whether a compelling economic argument can be advanced for such a policy response politics and personalities aside the answer i think is yes but particular preconditions must apply first and perhaps most importantly is the inability of citizens to directly control the provision of public services responsibility for providing public goods is delegated to agents of the voter and these agents be they bureaucrats or elected representatives have their own objectives and an ability to act upon them to the possible disadvantage of the voters second without direct control over public outputs voters must use indirect controls through the manipulation of their appointed agents these indirect controls take two general forms price incentives or quantity restrictions third the choice of either of these indirect controls must take place before the agent acts to provide public goods further voters must often make their choice of a price or quantity control before the benefits or costs of the public service are known to them with certainty agents however can wait to observe true benefits and coststhat is why we use agents and then provide a level of public services in response to costs benefits and the voters chosen control voter uncertainty over benefits and costs can be interpreted as placing the voter within a constitutional perspective where a voter s precise position in society that is his or her benefits and costs are unknown when choosing a control geoffrey brennan and james buchanan ch 1 were the first to really stress this important point fourth if benefit and cost uncertainty is predominantly over the position rather than slope of the marginal benefit and marginal cost schedules and if the marginal benefit schedule is relatively steep loosely an inelastic demand curve while the marginal cost schedule is relatively flat an elastic supply curve then quantity controls on agents behavior through tax or spending limitations will be the preferred control these four preconditions strike me as quite plausible rather than just an emotional reaction to a peculiar configuration of political and economic circumstances proposition 13 the headlee amendment and proposition 24 may be perfectly reasoned responses to a failure in the politi professor university of pennsylvania and research associate the national bureau of economic research inc an alternative hypothesis which has been tested and generally rejected attributes voter approval to a desire to alter the tax mix away from property taxation and towards other taxes what approving voters really want it seems is increased government efficiency and less redistribution see the recent studies by jack citrin paul courant edward gramlich and daniel rubinfeld and helen ladd and julie wilson

efficient exchange with a variable number of consumers the notion of a club efficient allocation introduced in this paper is shown to allow for a unifying treatment of rather disparate matters the main result deals with the dual characterization of such allocations the fundamental theorems of welfare economics the limit theorem on the core and a general version of a henry george theorem on the relationship between aggregate land rent and local public expenditures all can be recovered as special cases of this paper s main result

second best taxation as a game second best theory usually lies in the realm of normative analysis it focuses attention on the best solutions which still can be obtained in problems where constraints of various natures forbid the attainment of first best pareto optimal situations its central concern is the characterization of such second best solutions and a large part of the literature concentrates on the optimal design of taxes or of policies of public firms taking a second best problem we try in this paper to shift the emphasis from normative to positive considerations the solution we are interested in is not optimal with respect to some a priori given social welfare function embodying justice objectives but it is supposed to reflect the power of the different agents in a negotiation process clearly the conceptual tools required for such an analysis are to be found in game theory and it is actually a game theoretical approach that we follow here the model we are looking at is presented in section ii it formalizes one of the simplest second best problems that can be imagined we have a twogood economy with one private good and one public good agents have different wealth in private good and the public good is financed through a wealth tax this latter fiscal system is clearly not flexible enough to adjust contributions with marginal willingnesses to pay so that we actually face a second best situation there is one decision variable in the society the tax rate which determines the public good production about which the agents have conflicting desires to this problem we associate a game which provides a precise framework for the analysis of the power of the agents the positive outcomes of the negotiation process are supposed to belong to the core of this game sections iii and iv concentrate on the analysis of the core the results strongly contrast with those obtained in the classical studies of the core of 67 0022 053 l 81 040067 25 02 00 o

on price taking equilibria in club economies with nonanonymous crowding abstract competitive equilibrium in a coalition production economy or a club economy typically does not exist when there is free entry for two reasons first there may be an integer problem as is familiar from club theory with anonymous crowding second optimal groups may have different compositions from the population and then even if there is no integer problem it may be impossible to partition the population into optimal groups i define a notion of approximate equilibrium and show that such an equilibrium always exists in a sufficiently large economy i focus on the optimal size of the economy rather than of clubs

allocation of unit start up costs using cooperative game theory this paper discusses a three part generation offer strategy that enables generators to put in unbundled variable operating costs and fixed start up no load costs we then propose methods based on cost sharing axioms to allocate fixed start up no load costs among electricity consumers load retailers that take into account equity and rationality considerations we focus on the single period cost allocation first we apply three well known game theoretic axioms the core the nucleolus and the shapley value we discuss the relative merits and demerits of each criterion and also explore certain theoretical conditions for the existence of the core and the shapley value lying inside the core finally the multiperiod start up cost allocation problem is studied allocations based on individual periods vis a spl grave vis composite allocation for all periods are compared and contrasted numerical examples are used to illustrate all theoretical concepts

equilibrium in a finite local public goods economy abstract this paper examines the existence of a noncooperative equilibrium in a finite local public goods economy where consumers have quasi linear preferences jurisdictions consist of consumers who chose the same public project and finance the cost of production of public goods through either a proportional income tax or a poll tax we show that under a proportional income tax scheme a nash equilibria may fail to exist under a poll tax scheme an equilibrium always exists but in general nash equilibria violate a very weak efficiency condition we conclude by commenting on the stabilizing effect of zoning policies journal of economic literatureclassification number c71

evidence on the impact of the agency costs of debt on corporate debt policy in the last several years there has been increased theoretical emphasis on the agent principal problem as it applies to corporate finance this paper is an attempt to empirically test for the presence of the agency costs and their relation to the debt policy of corporations we find that firms with higher insider ownership have greater debt ratios than firms with lower insider ownership which may be explained by the agency costs of debt and or the agency costs of equity other regression results tend to confirm the theoretically optimal relationships put forth by myers we find that high growth firms use less debt rather than more debt high operating risk firms use more debt rather than less debt and firm size appears to be uncorrelated to the level of debt

political institutions and sorting in a tiebout model we construct a computational model of tiebout competition and show that political institutions differ in their ability to sort citizens effectively in particular we find that certain types of institutions those that become more politically unstable as citizen heterogeneity increases perform relatively poorly given a single jurisdiction yet these same institutions perform relatively well when there are multiple jurisdictions we provide an explanation for this phenomenon which draws upon simulated annealing a discrete nonlinear search algorithm jel

exclusion and the private enforcement of property rights abstract this paper develops a model of exclusion and property rights consumers choose between legal and illegal use a monopoly provider chooses a price for legal use a fine for illegal use and a level of monitoring to detect illegal use this model features a continuum of exclusion regimes instead of only the poles of private and public provision as is typical since the necessity of enforcing property rights creates two classes of users the provider is forced to price discriminate furthermore both the equilibrium and optimum feature imperfect exclusion and equilibrium exclusion is excessive

quantities qualities and multiple public services in the tiebout model abstract this paper introduces a new more realistic characterization of local public services this characterization fits education parks and streets none of which are a pure samuelsonian good it is shown that tiebout s hypothesis holds for this new type of services provided correct user charges are adopted introducing several local services considerably affects the results the paper emphasizes the difference in tastes with regard to quality as opposed to quantity earlier literature is shown to apply to the role of quality and ignores the role of quantity the effect of the latter makes mixed communities more efficient than segregated ones it is shown that efficient allocation with mixed communities is an equilibrium in a costless mobility tiebout type setting

fiscal federalism in europe lessons from the united states experience the existing political and legal institutions of fiscal policy making are under challenge as the united states and the eastern european and soviet states experiment with policy decentralization the states of western europe are looking to a more centralized policy structure via the e e c this paper seeks to raise issues of importance to all such reform efforts notably the need to consider and balance the inefficiencies of fiscal policy decentralization spillovers and wasteful fiscal competition against the inefficiencies of fiscal policy centralization policy cycles and localized pork barrel spending and taxes the need to develop new fiscal policy institutions emphasizing voluntary agreements and responsive agenda setters is stressed robert p inman daniel l rubinfeld department of finance and economics school of law and the wharton school of management department of economics university of pennsylvania university of california philadelphia pa 19104 berkeley ca 94720 and neer fiscal federalism in europe lessons from the united states e perienc by robert p inman and daniel l rubinfeld2 in democratic and totalitarian regimes alike the existing political and legal institutions of economic policy making are under challenge the wisdom of centralized fiscal regimes is now being questioned quietly under the banner of the new federalism in the united states and vocally if not violently through the secessionist movements of eastern europe and the soviet states as these nations experiment with decentralized fiscal institutions the countries of western europe are now looking to the potential of a more centralized economic order within the new european economic community this paper seeks to raise issues of importance to all such reform efforts and within that context to offer some cautionary advise for the design of e e c fiscal institutions based upon the recent american experience with centralized fiscal policy making ii the role for central government fiscal policies in economic unions the european community s progress towards an economic and monetary union the authors wish to thank allesandra casella and barry eichengreen for helpful comments and discussions 2 the authors are professor of finance and economics university of pennsylvania and research associate of the nber and professor of law and economics university of california at berkeley respectively professor rubinfeld gratefully acknowledges the support of the center for real estate and urban economics at the university of california berkeley based upon a common currency will create new demands for the design of fiscal policy 3 perhaps most importantly with a common currency and thus a common monetary policy member states will no longer be able to influence their local economies through exchange rate or monetary policies when state specific economic shocks occur 4 state specific fiscal policies stand as an alternative three questions arise 1 can member state fiscal policies be effective in offsetting local economic shocks in an integrated economic union 2 if effective are such policies likely to be optimally managed at the state level and 3 if ineffective or non optimal what central government policies might be then preferred the recent united states experience is instructive on each point can member state fiscal policies be effective in open integrated economies deficit financed demand creation may be of only limited usefulness to small member states first the demand stimulus of deficit financing is dissipated through import demands from other union states gramlich 1987 has shown that the effectiveness of deficit policies in the smallest u s states is significantly import constrained though larger states may be able to use own deficits to affect state employment prospects second in member states the use of such deficits to combat local shocks may be significantly limited by what the capital markets will allow while deficits may be see eichengreen 1990 there is growing evidence of the economic importance of state specific economic shocks to the short run and long run prospects of states and regions in integrated economic unions see bernard and durlauf 1991 for a study of oecd countries many of which are in the eec and brown coulson and engle 1990 for a study of u s states member states which manage these shocks well are likely to enjoy higher long run growth beneficial to the local economy during downturns and while member states may promise to repay those deficits with surpluses during the upswing such promises are difficult to enforce the u s capital market has appeared reluctant to accept a state s promise of a balanced budget over a business cycle such promises lack credibility when temporary economic downturns are not easily distinguished from long run structural declines when good deficits cannot be distinguished from bad the only credible local government promise may be a balanced budget in each fiscal year the stringent u s state budgets for the recessionary 1992 fiscal year balanced through major tax increases and deep spending cuts offer evidence on the point 5 even if member state deficit policies are economically feasible their management may be non optimal in interdependent economic unions the benefits from local demand creation through deficit financing may spillover to other member states via import expansion while the interest costs of deficits remain with the borrowing state the result will be an under provision of expansionary fiscal policies by member states using the arguments of hart 1982 central government fiscal policies stand as the policy

incentives for separation and incentives for public good provision in this paper i examine how the incentives of regions to unite and to separate are related to the incentives to provide public goods separation allows for greater influence over the nature of political decision making while unification allows regions to exploit economies of scale in the provision of public goods from a social welfare perspective there are excessive incentives for separation and for the provision of public goods when incentives for public good provision are not taken into account however these incentives can be misinterpreted as incentives for separation

migration proof tiebout equilibrium existence and asymptotic efficiency abstract tiebout s basic claim was that when public goods are local competition between jurisdictions solves the free riding problem in the sense that equilibria exist and are always pareto efficient unfortunately the literature does not quite support this conjecture for finite economies one must choose between notions of tiebout equilibrium which are pareto optimal but which may be empty or which are nonempty but may be inefficient this paper introduces a new equilibrium notion called migration proof tiebout equilibrium which we argue is a natural refinement of nash equilibrium for a multijurisdictional environment we show for sufficiently large economies with homogeneous consumers such an equilibrium always exists is unique and is asymptotically pareto efficient

fiscal federalism in europe in democratic and totalitarian regimes alike the existing political and legal institutions of economic policy making are under challenge the wisdom of centralized fiscal regimes is now being questioned quietly under the banner of the new federalism in the united states and vocally if not violently through the secessionist movements of eastern europe and the soviet states as these nations experiment with decentralized fiscal institutions western europe is now looking to a more centralized economic order within the new european economic community this paper seeks to raise issues of importance to all such reform efforts and within that context to offer some cautionary advise for the design of e e c fiscal institutions

congestable local public goods in an urban setting abstract in this paper we recognize two types of unpure local public goods lpgs congestable and pollutable this paper and the forthcoming one clubs in an urban setting mimeo 1980 are devoted to congestable lpgs clpg in part i we define classify and characterize clpgs clpgs may vary in their degree of congestability between zero in the case of a pure lpg and one in the case of a private good spatially we recognize two types of lpgs the dispersed lpg dilpg and the concentrated lpg colpg the first is distributed throughout the residential ring and the second is provided in specific locations to which households must travel the second part of this paper is devoted to the investigation of the properties of a cdilpg in an urban setting the properties of colpg are investigated in clubs in an urban setting mimeo 1980 a version of samuelson s rule as to the optimal allocation of pure public goods is extended on one hand to local dispersed public goods and on the other hand to clpgs two corrective pigouvian taxes are identified congestion tolls levied on households and a residential land tax these two taxes cover total government expenditure on the lpg the fraction of the expenses on the lpg covered by congestion tolls is and that covered by land taxes is 1 where is the degree of congestability efficiency can also be achieved by zoning the residential ring and regulating the housing density in it this procedure may replace taxation and its advantage is that we can control a large number of externalities by a single set of zoning rules and regulations an a posteriori rule to guide the local government as to the desirability of its actions is provided

economic theories of the break up and integration of nations abstract this paper surveys the recent political economy literature on the size distribution of nations the main themes of this literature are 1 a the spread of democracy leads to the creation of too many sovereign states 2 b the extent of factor mobility plays a key role in determining the incentives towards separation or integration 3 c economic integration through the development of international trade may require greater political integration to create and effectively maintain a level playing field in international trade at the same time economic integration by reducing the economic costs of separation increases the incentives towards political separation

cost allocation and net load variability a basic principle of electricity market design is that cost allocation should follow cost causation as closely as possible as renewable resources play a larger role in electricity generation system operators have become increasingly concerned about costs related to variability in net load while variable generation resources have attracted a great deal of attention along these lines load is a larger source of variability in most systems this paper introduces a shapley value framework to assess the total system cost attributable to electricity market participants that either exacerbate or alleviate net load variability furthermore this paper investigates the extent to which these costs are adequately reflected in wholesale market prices numerical tests indicate that the cost of variability on the hourly time scale is in most cases internalized by market integrated generators and buyers mitigating concerns that variability imposes a socialized cost from ramping or cycling of thermal generators

voting with ballots and feet existence of equilibrium in a local public good economy abstract this paper proves a general existence theorem for equilibrium in a local public good economy with free mobility by extending greenberg and shitovitz s j econ theory46 1988 223 236 approach each jurisdiction s collective choice rule is the d majority voting rule proposed by greenberg econometrica47 1979 627 636 spillover effects of local public goods externalities due to the population distribution and snob effects are all allowed we need transitivity and completeness of preferences these assumptions are not used by greenberg and shitovitz because they do not permit consumers to move free mobility of consumers causes disconnections in consumption sets a problem addressed here journal of economic literatureclassification numbers c62 d72 h72 r13

property value maximization and public sector efficiency abstract this paper analyses the efficiency implications of property value maximization communities are open so that utilities are parametric to housing producers and the local government each local government chooses its public good output to maximize aggregate property value in the community ignoring feedback effects on the composition of the housing stock it is shown that this type of government behavior generates an equilibrium in which all communities are internally pareto efficient

taxation and the tiebout model the differential effects of head taxes taxes on land rents and property taxes on the theory of state and local public finance is the seminal paper by charles tiebout 1956 tiebout constructed a multijurisdictional model in which independent local governments offer a wide variety of expenditure and tax policies and perfectly mobile consumers reveal their preferences for local public goods through their choice of residential community he argued that under such circumstances local public service provision would be efficient the tiebout model has formed the basis of a vast number of subsequent articles in the state and local public finance literature and has also been very influential in urban and regional economics the efficiency properties of various tiebout type models of local public good provision have been examined and the role of politics in these models has been debated at length in this literature of more direct relevance to this paper however is the fact that although tiebout had little to say directly about taxation simply assuming the existence of head taxes subsequent analyses have used adaptations of this model to examine the effects of local head taxes land taxes and property taxes it is the literature on the efficiency and distributional effects of alternative local taxes that is the subject of this survey 1

the consequences of overlapping tax bases for redistribution and public spending in a federation tax and expenditure policies are studied in a federation with imperfectly mobile households states implement a linear progressive tax and supply a public good a vertical fiscal externality reflecting the effect of state policies on federal revenues provides an incentive for state taxes to be too progressive a horizontal fiscal externality causes nonoptimal state taxes and expenditures because of the migration effect the federal government implements its own linear progressive tax and makes transfers to the states the federal government can nullify both externalities by appropriate fiscal policies and redistributive taxation can be decentralized to the states c 1998 elsevier science s a

local public goods with mobility existence and optimality of a general equilibrium abstract the existence and optimality of a general equilibrium in a model with a finite number of locations among which the continuum of individuals each individual belonging to one of a finite number of types have to choose is investigated each community finances its own production of public goods by taxes the way in which the tax burden in shared among the different types in the different regions is left arbitrary the model allows for restrictions on the mobility of either residents and or workers congestion and externalities in both production and consumption commuting costs preferences of an individual may also depend on his location as well as on the distribution of all individuals across locations

the selection principle and market failure in systems competition abstract if governments stepped in where markets failed reintroducing markets through the backdoor of systems competition will again result in market failure three models are presented which illustrate this wisdom the first is concerned with congestion prone public goods and shows that fiscal competition may be ruinous for the governments the second considers the insurance function of redistributive taxation and shows that systems competition may suffer from adverse selection the third studies the role of quality regulation and shows that systems competition may be a competition of laxity resulting in inefficiently low quality standards

clubs local public goods and transportation models a synthesis abstract clubs local public goods and transportation models are analyzed within a unified model the emphasis is on the derivation of optimal allocation pricing and the size of the sharing group we derive the conditions under which optimal prices will yield surplus or deficit as well as those under which competitive provision will be efficient given heterogeneous tastes we prove that segregation according to tastes is generally efficient although several cases where this result does not hold are also discussed we show that the existing literature is unnecessarily restrictive and that the unified approach suggested here considerably extends the existing analysis of clubs local public goods and the transportation problems

the breakup of nations a political economy analysis this paper develops a model of the breakup or unification of nations in each nation the decision to separate is taken by majority voting a basic trade off between the efficiency gains of unification and the costs in terms of loss of control on political decisions is highlighted the model emphasizes political conflicts over redistribution policies the main results of the paper are i when income distributions vary across regions and the efficiency gains from unification are small separation occurs in equilibrium and ii when all factors of production are perfectly mobile all incentives for separation disappear i introduction following the demise of communism the entire map of europe from the atlantic coast to the urals is being redrawn and issues of separation unification and the redrawing of borders are yet again at the forefront of european concerns many of the issues raised by this process are primarily of a political cultural or linguistic nature however there are also economic considerations that bear on this problem the objective of this paper is to analyze some important economic and political determinants of the process of unification and separation of democratic nations the starting point of our analysis is to suppose that from an economic efficiency point of view separation of nations is never desirable a unified nation is always more efficient since free trade among regions is guaranteed duplication costs in defense and law enforcement are avoided and local public goods provision such as transportation and communication networks or common standards can be coordinated furthermore any benefits of decentralization that might be obtained in a world with several nations may also be achieved within a unified nation by replicating the administrative structure of the world with several

an aumann shapley approach to allocate transmission service cost among network users in electricity markets this work presents a new methodology for the allocation of transmission service cost among network users in energy markets the proposed method is based on an optimization game theoretic framework aumann shapley that retains the desirable properties of other existing methodologies such as the average participations factors apf and long run marginal costs lrmc the approach is shown to be computationally feasible and presents desirable characteristics in terms of economic coherence and isonomy computational results are presented for the brazilian power system and compared with those obtained by three other methodologies lrmc apf and the current method adopted in brazil

the persistence and inefficiency of property tax finance of local public expenditures abstract i both characterize and evaluate equilibrium outcomes in multiple jurisdiction economies with property and land taxation but where direct taxation of residents is not possible the model contains perfectly mobile capital and population and competitive entrepreneurial governments that choose local taxes and expenditures to maximize after tax land rent when the cost of public goods is proportional to population the property tax emerges as the sole source of local finance even though the land tax has no deadweight loss it is shown that equilibria are not constrained efficient in general hence decentralized decision making is not consistent with the best use of the available tax instruments

do local governments use their tax bases efficiently abstract this paper analyzes an economy with multiple governments and with mobility of individuals across jurisdictions where each government is constrained to raise revenue for public expenditures using distortionary taxes a government is said to be competitive if the total benefits and costs of its decisions including the excess burden are perceived to be internalized the competitive equilibrium allocations are not constrained efficient in general there exists another set of distortionary taxes and public expenditures such that when private sector behavior adjusts to maintain equilibrium all individuals in the economy are better off thus competitive decentralized decision making does not lead to an efficient use of the available tax instruments it is also shown that the source of the failure can be interpreted as a missing market and the form of the best decentralized remedy which involves pricing the tax base is derived

a classroom exercise voting by ballots and feet this classroom experiment illustrates the efficiency enhancing property of a tiebout system in which local public goods decisions are determined by a political process students are given playing cards that induce diverse preferences for expenditures on alternative public goods and are initially assigned to specific communities then those in each community vote on the type and level of public goods provision which determine the tax cost after the provision and tax results are announced students are free to move to a location where the prior results are more consistent with their preferences this process continues for several rounds with a new vote taken at each location after moves have been made the exercise demonstrates that the combination of voting with feet and ballots tends to increase the total net benefit for all communities the voting on provision levels is structured to facilitate a discussion of the median voter theorem

property taxes and property values evidence from proposition 212 abstract we examine the effect of proposition 2 1 2 on revenues and housing prices in massachusetts communities that were initially constrained by the law saw large increases in state aid and the use of fees we use these initial constraints as instruments for changes in other components of revenue while treating the change in the property tax as exogenously determined by proposition 2 1 2 our results strongly suggest that communities that were able to increase their property taxes more rapidly saw greater increases in their housing values in the period following passage of the law

entrepreneurial land developers joint production local externalities and mixed housing developments abstract housing developments condos and suburban developments are not necessarily homogeneous developers provide different types of units of various sizes and other characteristics catering to different types of customers in this paper we allow joint production and local consumption externalities within each development and show that land developers who seek a profit maximizing set of units in developments may provide mixed developments we show that there exists an equilibrium and that every equilibrium is pareto efficient we provide examples in which mixed developments arise in a long run equilibrium we relate this work to a widely used hedonic pricing model by rosen 1974 and to an equilibrium concept under asymmetric information by rothschild and stiglitz 1976

a mechanism design approach to the tiebout hypothesis we revisit the tiebout hypothesis in a world in which agents may learn extra information as to how they value the various local public goods once located and jurisdictions are free to commit to whatever mechanism to attract citizens it is shown in quasi linear environments that efficiency can be achieved as a competitive equilibrium when jurisdictions seek to maximize local revenues but not necessarily when they seek to maximize local welfare interpretations and limitations of the result are discussed

local authority fiscal stance and the pattern of residential migration in the north west of england the degree of fiscal mobility present in household migration flows between local authority areas in northwestern england is assessed following an introduction the paper is divided into three sections the first reviews the methodologies of previous attempts to assess the extent of fiscally induced migration noting the dominance of american studies and outlines a choice theoretic structure within which it is possible to model human migration patterns section iii considers the problems inherent in modelling migration flows and section iv presents results for a compound poisson analysis of migration between local authority areas within the four counties of the north west region of england as well as an assessment of the prevalence of fiscal mobility excerpt

political centralization and government accountability boffa acknowledges financial support from the free university of bolzano ww82 piolatto from the spanish ministry of science and innovation eco 2012 37131 and the government of catalonia 2014 sgr 420 ponzetto from the spanish ministry of science and innovation jci 2010 08414 and eco 2011 25624 the spanish ministry of economy and competitiveness ryc 2013 13838 the government of catalonia 2009 sgr 1157 and 2014 sgr 830 the barcelona gse and the bbva foundation through its first grant for researchers innovators and cultural creators

other people s taxes nonresident voters and statewide limitation of local government abstract why would voters resort to a statewide tax limitation to force change in their own local government this paper develops and tests the hypothesis that property tax limitations succeeded because they allowed voters to lower tax rates in other communities statewide limitations effectively extend the voting franchise to individuals who have no standing in local elections voters may have preferences for tax and expenditure levels in other jurisdictions because they receive rents from employment in those jurisdictions because they directly own taxable assets in those jurisdictions or because changes in other jurisdictions might influence their own residential location choice empirical tests of this hypothesis focus on the massachusetts experience with proposition 2 documentclass aastex usepackage amsbsy usepackage amsfonts usepackage amssymb usepackage bm usepackage mathrsfs usepackage pifont usepackage stmaryrd usepackage textcomp usepackage portland xspace usepackage amsmat

sorting by foot travel for local public goods and equilibrium stratification we re examine tiebout s hypothesis of endogenous sorting in a competitive spatial equilibrium framework by considering both income and preference heterogeneity and by allowing agents to decide endogenously the number of visits to a travel for local public good the equilibrium configuration may be completely segregated incompletely segregated or completely integrated depending on relative market rents and income preference local tax parameters a segregated equilibrium may feature endogenous sorting purely by income or by both income and preferences while the rich need not be closer to the local public facility site multiple equilibria may arise when the equilibrium configuration is incompletely segregated jel classification d50 h41 classification par deplacement biens publics locaux accessibles par deplacement et stratification d equilibre les auteurs reexaminent l hypothese de tiebout de classification endogene dans un cadre d equilibre spatial concurrentiel en tenant compte a la fois de l heterogeneite des revenus et des preferences ainsi qu en permettant aux agents de decider de maniere endogene du nombre de visites pour se procurer un bien public local par deplacement il peut s ensuivre des equilibres de segregation complete de segregation incomplete ou d integration complete selon les rentes relatives et les parametres de revenus de preferences ou de fiscalite locale un equilibre de segregation peut entrainer une classification endogene sur la base seulement des revenus ou sur la base des revenus et des preferences alors que les riches n ont pas besoin d etre plus proches du site du bien public local des equilibres multiples peuvent surgir quand la configuration d equilibre en est une de segregation incomplete

supply and equilibrium in an economy with land and production a model with a finite number of consumers trading in land that can be changed through production is examined unlike most other models in urban economics land is modeled as measurable subsets of a compact set formally there are three major results conditions are found under which a solution to the producer s profit maximization problem exists secondly conditions are found under which a solution to the consumer s problem exists the assumptions used to prove these two results are standard finally the existence of an equilibrium is demonstrated copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the political economy of regionalism we examine the incentives of regions to unite and separate separation allows for greater influence over the nature of political decision making while unification allows regions to exploit economies of scale in the provision of government our paper explores the influence of size location and the diversity within regions in shaping this trade off we then examine the way in which alternative political institutions aggregate regional preferences and thereby define the number of countries

strong tiebout equilibrium under restricted preferences domain abstract we investigate the existence and give a partial characterization of a strong tiebout equilibrium which consists of an endogenously formed partition of the individuals into disjoint jurisdictions with each jurisdiction producing and financing its own public goods and moreover there exists no group of individuals who can all benefit by establishing their own community in particular no single individual finds it desirable to migrate from his equilibrium jurisdiction the existence proof makes use of the notion of consecutive games which we introduce and show that for such games there always exists a partition with a nonempty core

decentralization in replicated club economies with multiple private goods abstract we show that exhaustion of blocking opportunities is a sufficient condition such that every allocation in the core of a replicated club economy can be decentralized as a competitive equilibrium and that a related condition efficient scale is necessary and under an assumption on endowments sufficient such that competitive equilibrium exists and the core is nonempty these results do not require the euclidean structure and monotonicity assumed in lindahl equilibrium do not require convexity of preferences or costs and do not require the strong assumption that private goods are essential journal of economic literature classification numbers d46 d50 d61 h40

distributive implications of european integration one of the main pitfalls of european construction is undoubtedly the alleged charge that it impedes redistributive policy at the national level this charge is indeed widespread in political circles and in the medias yet it had received little attention among economists up to recently over the last few years an increasing amount of research has been devoted to that accusation or to be more neutral to that conjecture the purpose of our paper is to survey this literature we first present the conventional wisdom according to which mobility makes redistribution difficult if not impossible we also discuss the most important qualifications to this result and the solutions that are generally advocated and that imply some sort of cooperation in a second part we consider a different issue that of redistribution across countries it assumes the existence of some supranational government which is not trivial in addition informational differences between the national and the supranational governments are shown to play a crucial role

equilibrium and inefficiency in a community model with peer group effects public service output depends on input expenditures on own personal characteristics and on the characteristics of the other residents in the community the peer group effect in a community model with public expenditures set by voting with migration between communities and with land price differentials capitalization it is shown that communities may become heterogeneous in composition and second best inefficient this equilibrium occurs when the peer group effect is neither too strong nor too weak the inefficiency arises because an externality is created by migration the land price differential does not play the part of the price of the better peer group but of a transfer payment

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

pecking order or trade off hypothesis evidence on the capital structure of chinese companies this study tests the pecking order and trade off hypotheses of corporate financing decisions using a cross section of the largest chinese listed companies the study is built on allen 1993 baskin 1989 and adedeji 1998 to set up three models in which trade off and pecking order theories give distinctively different predictions 1 the determinants of leverage 2 the relationship between leverage and dividends and 3 the determinants of corporate investment in model 1 a significant negative correlation is found between leverage and profitability in model 2 a significant positive correlation between current leverage and past dividends is found these results broadly support the pecking order hypothesis over trade off theory however model 3 is inconclusive overall the results provide tentative support for the pecking order hypothesis and demonstrate that a conventional model of corporate capital structure can explain the financing behaviour of chinese companies

does endogenous formation of jurisdictions lead to wealth stratification conditions under which endogenous processes of jurisdiction formation entail wealth stratification are examined in a model where unequally wealthy households with identical preferences form jurisdictions in order to produce a public good financed by proportional taxation we define a stable jurisdiction structure to be a partition of the households into jurisdictions that is immune to individual deviations we define a jurisdiction structure to be wealth stratified when each jurisdiction is composed of households who form an interval with respect to the ordering of their wealth we show that a necessary and sufficient condition for the stratification of any stable jurisdiction structure is for the individual preferences for the public and the private good to exhibit a relation of gross substitutability complementarity between the public good and the private good that is independent from prices and wealth

assessing the importance of tiebout sorting local heterogeneity from 1850 to 1990 this paper argues that long run trends in geographic segregation are inconsistent with models where residential choice depends solely on local public goods the tiebout hypothesis we develop an extension of the tiebout model that predicts as mobility costs fall the heterogeneity across communities of individual public good preferences and of public good provision must weakly increase given the secular decline in mobility costs these predictions can be evaluated using historical data we find decreasing heterogeneity in policies and proxies for preferences across i a sample of u s municipalities 1870 1990 ii all boston area municipalities 1870 1990 and iii all u s counties 1850 1990

a critique of tiebout s theory of local public expenditures the last section of this paper presents a rigorous version of tiebout s theory of local public goods it is shown that equilibria exist and are pareto optimal this rigorous theory follows closely the more rigorous part of tiebout s work this rigorous theory makes a number of very special assumptions which make local public goods essentially private the body of this paper presents a series of examples which show that if one tries to generalize the rigorous version of tiebout s theory in a number of interesting directions then equilibria may no longer exist or may not be pareto optimal the conclusion is that tiebout s idea does not lead to a satisfactory general theory of local public goods the goal of this paper is to point out that tiebout s notion of equilibrium with local governments does not have the nice properties of general competitive equilibrium except under very restrictive assumptions tiebout 39 suggested that there are competitive forces which tend to make local governments allocate resources in a pareto optimal fashion consumers choose to live in those towns with the mix of taxes and public goods they prefer local governments choose this mix so as to attract inhabitants this idea may seem intriguing for it suggests that the invisible hand solves an important part of samuelson s perplexing public goods problem 32 tiebout in fact makes an argument which is nearly rigorous i give a rigorous version of his argument at the end of the paper however in this rigorous version so many restrictive assumptions are made that public goods become essentially private in the body of the paper i give a series of examples with which i try to convince the reader that one is forced to adopt tiebout s restrictive assumptions the idea is that if one changes any of his assumptions then either equilibria may not exist or may not be pareto optimal my examples are presented in the context of a general class of tiebout models i consider several subclasses one of which is the special case considered by tiebout in each of the subclasses except that considered by tiebout i give a counterexample either to the existence of equilibrium or to its pareto optimality the subclasses are so chosen that the difficulties they reveal would be shared by any reasonable tiebout model which differed from his special case i believe that my examples controvert tiebout s suggestion 39 last paragraph that his theory compares favorably with competitive equilibrium theory most of the examples in this paper have already appeared in the literature i cite related work as i go along what is new here is that i assemble the examples in a unified argument

accountability and decentralisation in government an incomplete contracts model this paper approaches the question of the appropriate level of decentralisation of power in government as a problem in the allocation of control rights under incomplete contracts the model of the paper compares allocations of power to local central and regional government as alternative means of motivating governments to act in the interests of citizens centralisation allows benefits from policy coordination but has costs in terms of diminished accountability which can be precisely defined as the reduced probability that the welfare of a given region can determine the re election of the government the model is extended to allow for conflicts of interest within regions and externalities between central and local governments in a federation it is also applied to determining levels of fiscal transfer between localities and to circumstances where governments may act as leviathans appropriating resources for their own use

local government structure and urban residential location the large research literature on the tiebout model has developed with little attention paid to the urban economic structure in which local government functions this paper attempts to examine the theoretical consequences of local jurisdictions functioning within a conventional monocentric urban model it also discusses a mathematical formulation of a two jurisdiction linear city in which the local service level and local property tax rate might be used as strategic variables in a game theory sense it is concluded that for this to happen the local service level has to have more than one element which is intuitively appealing some references are developed to current british local government and possible changes

clubs and the market large finite economies abstract this paper builds a general equilibrium model of finite economies with exchange and club formation agents trade multiple private goods widely in the market can belong to several clubs and care about the characteristics of other club members because club memberships are indivisible and choices of club memberships must be coordinated across the population the core of such an economy may be empty and equilibrium may not exist however for large finite club economies an approximate core is not empty and states in this approximate core can be approximately decentralized by prices for private goods and for club memberships the arguments use convexification tools familiar from the literature on private goods economies and a new tool of some independent interest that addresses the special problems created by the nature of club memberships journal of economic literature classification numbers d2 d5 h4

public economics and the theory of public policy when james mirrlees and william vickrey were awarded the nobel prize in economics last year it marked only the third time that the award had gone to scholars of public sector economics in contrast to the reception given to the previous two winners ronald coase and james buchanan the news was greeted with some bewilderment by policy specialists once removed from the academic literature who are mirrlees and vickrey and what have they done that has been of lasting benefit to the study of public economics let alone of practical benefit to policy makers this seems to me to be a fair question coase after all had set out a conceptual approach to the study of externalities and transaction costs that has become an implicit part of the methodological baggage carried around by policy economists and policy makers alike buchanan was in part responsible for the welcome emphasis on institutions in public sector decision making and for insisting that politicians bureaucrats and voters are human beings with human motives the legacy of mirrlees and vickrey is less well known but i would argue it is every bit as profound their approach to the theory of economic policy which is grounded on the importance of imperfect information as a constraint on public policy has changed the very nature of public economics research and of its implications for economic

corporate behavior in adjusting to capital structure and dividend targets an econometric study this study of financing decisions by u s corporations examines the issuance of long term debt issuance of short term debt maintenance of corporate liquidity issuance of new equity and payment of dividends given costs and imperfections inherent in markets a firm s financial behavior is characterized as partial adjustment to long run financial targets individual firm data are used so that speeds of adjustment are allowed to vary by company and over time the results suggest that financial decisions are interdependent and that firm size interest rate conditions and stock price levels affect speeds of adjustment this study of financing decisions by u s corporations examines the issuance of long term debt short term debt and equity the maintenance of corporate liquidity and the payment of dividends the firm s financial behavior is characterized as partial adjustment to long run financial targets and individual firm data 1966 1978 are used to estimate firm specific time varying speeds of adjustment the results suggest that financial decisions are interdependent and that firm size interest rate conditions and stock price levels affect speeds of adjustment also the estimated coefficients are more plausible than the very small taggart 28 or very large spies 26 values found in earlier studies section i of the paper introduces the general model in section ii a tractable empirical model is developed section iii presents the data to be used in the study and discusses econometric issues in section iv results and conclusions are offered

household location and tiebout do families sort according to preferences for locational amenities abstract if households sort efficiently across locations then at a given location families receive the same marginal benefit from the locational amenities we test for such sorting by imposing cross equation restrictions on hedonic regressions that difference away location versus house specific effects estimates are obtained using a unique subset of the american housing survey in which adjacent housing units are grouped together and observed in both 1985 and 1989 rejection of the cross equation restrictions unambiguously implies an inefficient sorting of households in contrast the data support the cross equation restrictions which is a necessary but not sufficient condition for efficient sorting

tiebout sorting and neighborhood stratification tiebout s classic 1956 paper has strong implications regarding stratification across and within jurisdictions predicting in the simplest instance a hierarchy of internally homogeneous communities ordered by income typically urban areas are less than fully stratified and the question arises how much do departures from standard tiebout assumptions contribute to observed within neighborhood mixing this paper quantifies the separate effects of employment geography via costly commuting and preferences for housing attributes on neighborhood stratification it does so using an equilibrium sorting model estimated with rich census micro data simulations based on the model and credible preference estimates show that counterfactual reductions in commuting costs lead to marked increases in racial and education segregation and to a lesser degree increases in income segregation given that households now find it easier to locate in neighborhoods with like households while turning off preferences for housing characteristics increases racial segregation especially for blacks doing so reduces income segregation indicating that heterogeneity in the housing stock serves to stratify households based on ability to pay further we show that differences in housing help to accentuate differences in the consumption of local amenities

clubs in an urban setting abstract in this paper the properties of a congestable concentrated local public good ccolpg are described taking into account both locational aspects and congestion this discussion therefore completes the analysis of congestable local public goods lpg which was started in our earlier paper congestable local public goods in an urban setting j urban econ 290 310 1982 it is here shown that the optimal provision of ccolpg leads to the creation of clubs where the government has to determine the location and provide the optimal quantity of lpg in each club and also levy congestion tolls on users according to their level of utilization of the club congestion tolls cover the est part of the costs where is the level of congestability of the ccolpg the rest of the costs are covered by taxing land rents clubs will form possibly more than one per city even if the lpg is pure i e 0 and they will contain a single household if the lpg is private i e 1 the difference between these results and those of classical club theorists stem from the fact that here we also take into account the limited supply of land of given accessibility i e locational aspects which like congestion lead to the creation of clubs when these two factors are considered together it explains why congestion tolls alone are not sufficient to finance clubs operations or why pure lpgs also have to be provided locally etc

trade capital mobility and tax competition this paper examines a system of governments national state or local that finance public expenditures with taxes on mobile capital e g a property tax unlike previous research on tax competition explicit consideration is given to the general equilibrium determination of the prices at which goods are traded between regions the analysis identifies inefficiencies in government behavior that are not apparent in models in which the terms of trade are exogenously given capital taxation is shown to create an inefficient distribution of public good outputs across regions accompanied by an inefficient pattern of trade a model is presented in which the chosen levels of public good outputs differ across regions containing identical residents and production possibilities there is a wasteful diversity of public good supplies

tiebout economies with differential genetic types and endogenously chosen crowding characteristics abstract we consider a tiebout economy with differential crowding and public projects in which agents are distinguished by their tastes and genetic endowments agents choose which crowding characteristic for example a skill they wish to express and this affects their value to other members of their jurisdiction club firm etc an agent s choice is influenced both by his genetic endowment which affects his cost of acquiring crowding characteristics and by his preferences over which crowding characteristic he expresses we show that if small groups are strictly effective the core is equivalent to the set of anonymous competitive equilibrium outcomes but that the core generally contains taste homogeneous jurisdictions journal of economic literature classification numbers h41 h72

towards european monetary union without the ems towards emu without the ems paul de grauwe this paper examines the causes of the breakdown of the ems arguing that ems credibility has always been impaired by recessions this has relevance both for the future of monetary union in europe and for the path by which it might be attained i argue that in comparison with the erm the present more flexible exchange rate arrangements will ease not exacerbate some of the technical problems in making the transition to emu i then analyse the political economy of monetary union and identify the main stumbling blocks that remain finally i set out a specific proposal that takes advantage of the new opportunities to move forward towards emu

equivalence of the core and competitive equilibrium in a tiebout economy with crowding types abstract we propose a new model of a local public goods economy with differentiated crowding the new feature is that taste and crowding characteristics of agents are distinguished from one another we prove that if the economy satisfies strict small group effectiveness then the core is equivalent to the set of tiebout equilibrium outcomes equilibrium prices are defined to depend solely on crowding characteristics this implies that only publicly observable information and not private information such as preferences is needed to induce agents to sort themselves into efficient jurisdictions thus our model allows us to satisfy bewley s 6 anonymity requirement on taxes in his well known criticism of the tiebout hypothesis

credible redistribution policy and skilled migration abstract we analyze the joint determination of income redistribution and migration flows across fiscally independent regions in our model regional governments lack commitment so their policy announcements must be credible and redistribution between skilled and unskilled workers is bounded by informational constraints in any given region the welfare of all workers is increasing in the share of skilled workers as after tax incomes increase for both skilled and unskilled workers when skilled workers are more geographically mobile than unskilled ones the endogenous response of redistribution policy can induce regional agglomeration of skilled workers we also find that the equilibrium features symmetry breaking if migration costs are relatively low and that worker mobility tends to amplify pre existing welfare differences in income and welfare across regions

extending the bidding format to promote demand response we propose an extended bidding structure to allow more realistic demand characteristics and behaviors to be expressed via flexible bids in today s iso run energy markets demand bid formats are all separable over time however a significant and growing segment of demand can be shifted across time and therefore has no way to bid its true valuation of consumption we propose additional bid types that allow deferrable adjustable and storage type loads to better express their value and thus elicit demand response in the most natural way via direct participation in the market we show that the additional bid types are easily incorporated into the existing market with no technological barrier and that they preserve the market s efficiency and incentive compatibility properties using real market data we give a numerical demonstration that the extended bid format could substantially increase social welfare and also present additional insight on storage expansion scenarios

cost causation based allocations of costs for market integration of renewable energy an important problem in modern electrical power systems is the inherent variability and uncertainty of renewable energy resources allocating the costs generated by the variable resources in a just and reasonable manner is crucial for economic efficiency in this paper we develop an axiomatic framework for allocating the deviation costs generated by variable resources using the cost causation based principle the cost causation principle has a long historical tradition in electrical energy systems and has been proved to provide economic efficiency we apply the new cost causation based framework to allocate the cost in the production deviation of a group of renewable energy producers and thereby help promote the market integration of renewable energy the resulting cost allocation framework is then applied to five wind power producers bidding in the iberian electricity market in europe using real data on wind speeds and market prices

local public goods and private suppliers musical suburbs replayed abstract this paper deals with the existence of private market suppliers in a standard local public goods model the result of this modification can be a cycling process instigated by rich households rather than poor households the theoretical model provides empirical implications for capitalization studies and policy implications for the provision and financing of local public goods including education