Discussion Paper No.1703

Abstract :
This paper analyzes the joint provision of local public goods and industrial distribution. Often, when local public goods are offered in a city, the local government in nearby regions seek to obtain a ”free ride” and make use of the public goods in their region. If the local public goods of a city can be consumed in a nearby region, it may be possible to provide them jointly and share the administration and cost. It is expected of industrial dispersion to increase revenue and of local governments to participate in joint provision voluntarily. Then, there would be no need for policy centralization or local government consolidation. The results depend on the population in the periphery. When the population is large, the local government in the periphery accepts the joint provision of local public goods regardless of the industrial location. Conversely, if the periphery population is small, the manufacturing sector agglomerates in the city and the local government does not want joint provision. Only when the manufacturing sector disperses and the wages in the periphery increase sufficiently does the local government accept joint provision.