Dietmar Wellisch

The provision of local public goods and factors in the presence of firm and household mobility

Abstract This paper studies the efficiency properties of allocations when firms and households are mobile and when local governments provide local public goods and local public factors. The analysis differentiates between immobile land owners and perfectly mobile workers and concludes that an efficient allocation is obtained if there is no outflow of land rents to absentee owners. If rents flow out, only local public goods are supplied in accordance with the Samuelson Rule. The provision of local public factors is inefficiently low, however, and jurisdictions tax mobile firms and mobile households inefficiently high in order to restrict the outflow of rents. An optimal intervention scheme is derived in this case. We also analyze the distortions that result when the non-availability of local head taxes makes it impossible to internalize crowding costs.

Decentralized income redistribution and immigration

Abstract We analyze the welfare and other effects of immigration on a system of jurisdictions with a common labor market, mobile capital, and redistributive tax/transfer policies. Comparative-statics analysis of a model of Nash non-cooperative equilibria in tax/transfer policies shows that the welfare effect of immigration depends on whether immigrants are net fiscal contributors or burdens. Any one jurisdictions redistribution and immigration policies generate fiscal externalities for others in the system, which a central government can internalize by appropriate taxes and subsidies.

Is free trade in the interest of exporting countries when there is ecological dumping

Abstract Given conditions of oligopolistic competition, the coordinated ban of direct export-promoting policies (e.g. in the EU or by GATT) increases the income of exporting countries. However, in the presence of environmental distortions, free trade can lead to ecological dumping in exporting countries. The question arises if free trade is still in the interest of exporting countries. We show that welfare-maximizing governments of exporting countries prefer free trade even if countries subsidize their local industries indirectly via ecological dumping. The existence of further national policy instruments does not make free trade agreements obsolete.

Can household mobility solve basic environmental problems

The paper studies the role of household mobility for efficiency of decentralized environmental policy. Pollutants may travel across regional boundaries, and regions can influence their capital income from abroad as well as the rent outflow to nonresidents by means of their environmental policy. Different degrees of interregional household mobility are analyzed within this framework. While regional governments internalize all externalities in their own self-interest in the case of perfect household mobility, only a region that voluntarily makes an interregional transfer to the other region has incentives to internalize interregional externalities if households are imperfectly mobile.

Strategic provision of local public inputs for oligopolistic firms in the presence of endogenous location choice

We develop a model in which two regional governments compete for a mobile oligopolistic firm by providing local public inputs. The central mechanism of our model is the interaction of an agglomeration advantage (partial nonrivalness of the local public inputs) and an agglomeration disadvantage (costs associated with the change of location of firms). We show that a central government of both regions induces an interregionally optimal allocation of firms by providing the optimal levels of local public inputs. The decentralized provision of local public inputs by regional governments, however, leads in most cases to a (interregionally) suboptimal allocation.

Internalizing intergenerational externalities by regionalization

Abstract The emission of long-lived pollutants and public debt policies are related by the joint problem of intergenerational externalities. This paper examines both phenomena from the local perspective, in a model with interregional household mobility. We conclude that local environmental agencies have incentives to internalize all intergenerational pollution externalities, provided all rents of immobile production factors, including waste emissions, are appropriated by the regions. Contrary to widespread belief, however, neutrality of local public debt is not guaranteed in general. Shifts in the intertemporal pattern of local taxes change the net wealth of local property owners if distortionary residence-based taxes are imposed to service the local debt.

Decentralized fiscal policy with high mobility reconsidered: Reasons for inefficiency and an optimal intervention scheme

Abstract Following a traditional view, decentralized government activity leads to inefficient outcomes in many cases since regional governments ignore the welfare of nonresidents when providing public goods and levying taxes. This paper demonstrates that this view and the underlying explanation is misleading if households are mobile. The true reason for inefficient regional government behavior are diverse preferences for redistribution. If regional governments had identical tastes for redistribution, a decentralized Nash equilibrium would be efficient. Regional governments would internalize all externalities in their own self-interests. However, even if the objectives of regional governments differ, a central government can correct inefficient regional behavior by a simple intervention scheme.

A Second-Best Theory of Local Government Policy

This paper provides a model where a large number of small jurisdictions compete for mobile firms and households by supplying local public goods and factors. Jurisdictions only have an incomplete set of tax instruments at their disposal to achieve an efficient allocation. We derive second-best behavioral rules for local governments and extend optimal taxation results to the local level. Local governments distort locational decisions of mobile firms and households by taxing them above marginal congestion costs so as to balance relative locational distortions between taxes. The analysis also reveals that there is a systematic difference between the provision of local public goods and factors. While local public goods are provided according to the Samuelson rule in most situations considered, local public factors are undersupplied relative to this rule.

Finanzwissenschaft und Wirtschaftskreislauf

Der Staat spielt in allen modernen Industrienationen eine bedeutende Rolle. Neben der Schaffung und Aufrechterhaltung der Rechtsordnung und der unmittelbaren Beaufsichtigung von Unternehmen durch verschiedene Aufsichtsbehorden, z.B. zur Erhaltung von Wettbewerbsbestimmungen und Umweltauflagen, greift der offentliche Sektor auch direkt in das Marktgeschehen ein. Er tritt als Unternehmer auf und bietet Guter und Dienstleistungen an. So betreibt der Staat in vielen Landern Telekommunikationsgesellschaften, die Eisenbahn oder einen Teil des Rundfunks sowie Fernsehens. Ebenso besitzt er Anteile an vielen privaten Unternehmen, wie z.B. an Energiebetrieben und Luftfahrtgesellschaften. Daneben tritt er als Nachfrager auf und kauft Guter und Dienstleistungen, um Polizei und Militar auszurusten oder Krankenhauser, Schulen und Universitaten auszustatten. Schlieslich betreibt er eine massive Einkommensumverteilung insbesondere durch die staatlichen Sozialversicherungssysteme und die Sozialfursorge.