Management of Large City Regions: Designing Efficient Metropolitan Fiscal Policies

Abstract

Metropolitan areas (MSAs) are the location of the great majority of economic activity in the United States, and the largest produce a disproportionate share of output. It is thus critical for the economy's long-term growth that large cities operate efficiently. In this paper, we briefly review the sources of productivity growth in cities. We then discuss the costs and benefits of political decentralization in large MSAs. After documenting the interdependence of the suburbs and central cities in large MSA, we develop a model that embodies many of the empirically verified aspects, including agglomeration economies and public goods. After calibrating the model to actual outcomes in a representative city, we simulate the effects of various kinds of fiscal redistributions. We conclude that, under the model, some kinds of fiscal redistributions can provide benefits in both cities and suburbs. Copyright (c) 2010, Wiley Periodicals, Inc.

The dilemma of “Twin Cities”: is the suburban dependence hypothesis applicable?

“…However, how to further allocate and manage resources more efficiently is another concern. Haughwout (1999Haughwout ( , 2010 suggested that local-government cooperation between cities and their suburbs can improve overall metropolitan welfare, or that central-city/suburban consolidation can internalize externalities from central cities. In fact, the former strategy has actually been enforced in many countries including the US, Spain (Bel and Fageda 2008), and China (Tao and Xu 2006), while the latter has seen a renewal of interest in relation to the issue of metropolitan political fragmentation, which states that the proliferation of local governments within a metropolitan area is the intractable cause of political strife due to the separation of needs and resources (Rusk 1995;Howe et al 1998;Morgan and Mareschal 1999;Savitch and Vogel 2004; Hortas-Rico and Sole-Olle 2010).…”

“…This central-city/suburban strife phenomenon can be examined based on the suburban dependence hypothesis (Voith 1992;Savitch et al 1993), which argues that there exists a positive externality from central cities to their suburbs and this is a typical example of market failure from the viewpoint of public economics. If this hypothesis is applicable, subsidizing the central cities can improve the welfare of larger metropolitan areas and hence fiscal centralization seems to be reasonable (Haughwout 2010). On the other hand, if it is true that the suburbs can be substituted for the central cities, it is then necessary for the suburban authorities to strive to obtain a fairer share of the fiscal resources.…”

Regional Population–employment Dynamics Across Different Sectors of the Economy*

“…Institutionally, the growing formalization and devolution of government policy, especially with respect to infrastructure and urban development investment projects, implied an increased demand for accurate and effective policy planning tools. In particular, the indirect impact of government investment on agglomeration economies is best analyzed in regional economic equilibrium models (Haughwout, 2010). New theoretical developments in regional economic modeling, as discussed in of this paper, also add to a new and increased scientific interest in applied regional economic models.…”

Assessing the Merits of the Urban-Led Policy in China: Spread or Backwash Effect?

“…In actual fact, these concerns are fully reflected in [13,14] who stated that there are either positive (spread, trickling-down) or negative (backwash, polarization) effects of central cities on nearby areas. The former includes the migration of unemployed workers, the demand for agricultural and raw materials and eventually investment and the relocation of firms from the central cities to the outlying areas, while the latter includes, for example, the migration of educated, skilled workers from the rural areas, rural capital flight and the "fiscal exploitation" of central cities [15]. Since the spread-backwash effects of the core regions on the peripheries may appear simultaneously in growth pole theory, how to assess their net influences (i.e., the spread minus the backwash effects) is critical for development strategy, especially for an "urban-led" policy in China.…”