Discussion Paper No.2002

Abstract :
This paper investigates optimal and equilibrium population dis-tributions in regions with two districts where all resident individu-als migrate freely. In each district, local public goods with positive spillover effects are provided. This paper analyzes whether agglom-eration arises when regional population decreases. It also examines the effects of national transfers to local governments on the popula-tion distribution.
This paper shows that a reduction in the regional population causes population agglomeration and the diminishment of some dis-tricts, although maintaining two districts remains optimal. Ear-marked transfers of local public goods maintain the two districts in equilibrium, although the lump-sum transfers do not.

Keywords : regional population; local public good; external effect; national transfers
JEL classifications: R23, R51, H41, H71