Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting

Thomas J. Nechyba

NBER Technical Working Paper No. 190
Issued in January 1996
NBER Program(s):Public Economics

We present the first fully closed general equilibrium model of hierarchical and local public goods economies with the following features: (i) multiple agent types who are endowed with both some amount of private good (income) and a house, who are mobile between houses and jurisdictions, and who vote in local and national elections; (ii) multiple communities that finance a local public good through property taxes which are set in accordance with absolute majority rule; and (iii) a national government that produces a national public good financed through an income tax whose level is determined through majority rule voting. In contrast to previous models, no overly restrictive assumptions on preferences and technologies are required to prove the existence of an equilibrium in the presence of property taxation and voting. Thus, the existence of an equilibrium is proved without any of the major restrictions used in the past, and sufficient conditions for stratification of agents into communities based on their public good preferences and their wealth levels are found. This model lays the groundwork for a positive applied analysis of local public finance and intergovernmental relations. It furthermore builds the foundation for a parameterized computable general equilibrium model of local public goods and fiscal federalism that is used elsewhere to analyze a variety of policy issues.

download in pdf format
   (979 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/t0190

Published: Nechyba, Thomas J. "Existence Of Equilibrium And Stratification In Local And Hierarchical Tiebout Economies With Property Taxes And Voting," Econometric Theory, 1997, v10(2), 277-304.

Users who downloaded this paper also downloaded* these:
Nechyba w5419 Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion
Nechyba w5420 A Computable General Equilibrium Model of Intergovernmental Aid
Nechyba w5642 Public School Finance in a General Equilibrium Tiebout World: Equalization Programs, Peer Effects and Private School Vouchers
Nechyba Introducing School Choice into Multidistrict Public School Systems
Stiglitz w0954 The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us