Beneficial Inequality in the Provision of Municipal Services : Why Rich Neighborhoods Should Get Plowed First

This paper provides an explanation for the common observation that higher income neighborhoods typically receive better public services than lower income neighborhoods. Intuitively, one might expect that lower income groups, which typically form the voting majority of cities, would object to an unfair allocation of this nature. Wealthy individuals, however, have the option of moving to the suburbs. As we learn from the tax competition literature, mobile factors are generally able to command a premium. Since institutional constraints prevent regressive taxation, and public goods are by definition consumed in equal quantity all agents, only public services remain as an instrument for municipalities to use to keep wealthy agents in their tax base. We show that both rich and poor agents benefits from this differential access to public service and explore how factors like the ratio of rich to poor and the differences between their income affect the equilibrium allocation