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Agglomeration externalities and urban growth controls

Vermeulen, Wouter (2011) Agglomeration externalities and urban growth controls. SERC Discussion Papers (SERCDP0093). Spatial Economics Research Centre (SERC), London School of Economics and Political Science, London, UK.

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Abstract

Should constraints on urban expansion be relaxed because of external agglomeration economies? In a system of heterogeneous cities, we demonstrate that second-best land use policy consists of a tax on city creation and a subsidy (tax) on urban development in cities in which the marginal-average productivity gap is above (below) average. However, the implementation of this policy requires coordination at the system level. A tax on city creation does not raise welfare if development taxes are set decentrally by competitive urban developers, nor does correction of these taxes raise welfare if a tax on city creation is unavailable. In the resulting constrained optimal allocation, urban development is subsidized in all cities. The quantitative significance of these findings is explored in an application of our model.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/SERC/publication...
Additional Information: © 2011 The Author
Divisions: Spatial Economics Research Centre
Subjects: H Social Sciences > HN Social history and conditions. Social problems. Social reform
JEL classification: R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies
R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis > R52 - Land Use and Other Regulations
Sets: Research centres and groups > Spatial Economics Research Centre
Date Deposited: 15 Jul 2014 14:55
Last Modified: 30 Jan 2019 12:01
Funders: Economic and Social Research Council, Department for Business, Innovation & Skills (BIS), Welsh Assembly Government
URI: http://eprints.lse.ac.uk/id/eprint/57852

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