Inefficiencies from Metropolitan Political and Fiscal Decentralization: Failures of Tiebout Competition

We examine theoretically and quantitatively the welfare effects of decentralized (Tiebout) provision of local public goods as compared to uniform centralized provision. We show that inefficiencies associated with property taxation offset the potential welfare gains from matching provision to preferences under decentralized provision. We identify an externality in community choice as the major source of inefficiency: Poorer households crowd the suburbs while avoiding taxes by consuming little housing. Our quantitative findings are based on a variety of estimates including an estimated model of the Boston Metropolitan Area.