Discussion Paper Details

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Title: How to make the metropolitan area work? Neither big government, nor laissez-faire

Author(s): Carl Gaigné, Stéphane Riou and Jacques-François Thisse

Publication Date: June 2013

Keyword(s): administrative boundary, economic boundary, fiscal competition, local labor markets, metropolitan area and suburbanization

Programme Area(s): International Trade and Regional Economics and Public Economics

Abstract: We study how political boundaries and fiscal competition interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, institutional fragmentation need not be welfare-decreasing, and commuting from the suburbs to the central city is not wasteful. Thus, the institutional and economic limits of the central city do not coincide at the social optimum. Under tax competition, the central business district is too small. The dispersion of jobs is increased when suburbanite workers consume the public services supplied by the central city. This indicates the need for some metropolitan governance.

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Bibliographic Reference

Gaigné, C, Riou, S and Thisse, J. 2013. 'How to make the metropolitan area work? Neither big government, nor laissez-faire'. London, Centre for Economic Policy Research.