In theory, federal transfers that increase the efficiency of household locations will offset differences in federal-tax burdens and local tax revenues from capital, but not local tax revenues from residents. Transfers that redistribute resources more equitably across regions will likely target...

The conventional wisdom is that market forces cause cities to be inefficiently large, and public policy should limit city sizes. The foundation for this argument is based on the unrealistic assumptions that city sites are homogeneous, federal taxes are absent, and individuals get free land to...