Economic Theory

, Volume 67, Issue 1, pp 1–27 | Cite as

Capitalization, decentralization, and intergenerational spillovers in a Tiebout economy with a durable public good

  • John P. ConleyEmail author
  • Robert Driskill
  • Ping Wang
Research Article


We consider an overlapping generations model with a durable local public good (DLPG). We establish a Tiebout theorem (equilibrium exists and is first best) as well as an equal treatment Second Welfare Theorem in this dynamic DLPG economy. We establish conditions, including the Small Jurisdiction assumption, under which local provision of durable public goods results in the full internalization of the intergenerational spillovers that durability entails. In contrast, when durable public goods are provided by the national government, internalization does not take place and underprovision of public goods results. This sets up an institutional trade-off between national and local provision of public goods that balances the relative strength of intergenerational and interjurisdictional spillovers. Our main conclusion is that while capitalization is an effective mechanism to cause agents to internalize intergenerational spillovers, the effectiveness of this mechanism is limited by the degree to which there are more general spillovers across jurisdictions.


Durable local public goods Capitalization and intergenerational spillover effects Dynamic Tiebout Equilibrium Welfare analysis 

JEL Classification:

H4 D9 H0 D7 



We would like to thank Marcus Berliant, Hideo Konishi, Tom Nechyba, Antonio Rangel, Robert Rosenthal, Steve Tadelis, anonymous referees, an associate editor, and an editor. We are also grateful to participants of the Public Economic Theory Meetings, the Midwest Economic Theory Meetings, and the National Tax Conferences for useful discussions. Needless to say, the usual disclaimer applies.

Supplementary material

199_2017_1094_MOESM1_ESM.pdf (140 kb)
Supplementary material 1 (pdf 139 KB)


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.Department of EconomicsVanderbilt UniversityNashvilleUSA
  2. 2.Washington University in St. LouisSt. LouisUSA
  3. 3.NBERCambridgeUSA

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