Imperfect Mobility and Local Government Behavior in an Overlapping-Generations Model
by
John Douglas Wilson
Department of Economics
Indiana University
and
David E. Wildasin Department of Economics Vanderbilt University Nashville, TN, 37355 USA
Abstract
This paper reconsiders the implications of land-value-maximizing local governments in an overlapping-generations model with imperfect mobility. Specifically, residents develop an 'attachment to place' or 'location-specific capital' once they reside in a town for a single time period. The analysis shows that attempts by governments to capture the resulting rents from less-mobile individuals create inefficient migration, leave all workers worse off in an ex ante sense, and place relatively high burdens on those workers who have high migration costs. Public good levels are also inefficiently chosen.
