Discussion Paper No.1608

Abstract :
This paper analyzes the relation between regional population and regional public expenditure by considering the effect of the provision of public services. In the analysis, we consider the possibility ofperfect agglomeration: that only one region exists and that other regions have disappeared. Moreover,the paper analyzes the other case that each region always exists because of fixed regional boundaries.
In efficient allocation, if the cost per capita of a local public good declines with population size, public expenditure per capita is higher in the more populated region even though the amount of public goods is smaller. In the larger region, because of the cost effect, public expenditure is larger. Conversely, if the cost per capita increases with the population, the amount of local public goods increases with the population size. However, in this case, the full agglomeration is efficient and only one region exists.
When regional boundaries are fixed, results change only when the cost per capita function does not drastically increase. In other words, because of the demand effect, public expenditure per capita might be higher in the region with the larger population even though this case does not arise in efficient allocation: this case is realized in a fixed territory though.

Keywords : local public expenditure; regional population; local public goods

JEL code: R51, H72, R23, H73