Discussion Paper No.1403

Abstract :
This paper analyzes the effect of industrial location on the provision of local public goods in two regions. Initially two regions are asymmetric because industrial firm agglomerates in one region and the other region do not provide a local public good. When industrial firms disperse across regions, the local government that does not provide it gets the larger revenue. In this case, this paper analyzes whether the local government provides it or not. The results depend on the population through the land rent. When the population is large, the local government in the periphery does not always provide the local public good. On the other, when the population is smaller, the local government always provides it. Only when the population belongs to some range, through industrial dispersion, does the local government change the behavior toward the local public good. In this case, the industrial distribution affects the local government policy.

JEL classification: H41, H73, R12, R32
Keywords : Local public goods; Asymmetric district; Industrial distribution