The study of the relationship between local government law and economics has long had one central text: Charles Tiebout’s famous 1956 article, A Pure Theory of Local Expendatures. Tiebout developed an ingenuously simple model showing that, if local governments provide purely local public services and mobile individuals move to the local government that best fits their preferences for public policies, local public servicess will be provided at the efficient level. The substantial body of scholarship that followed Tiebout’s original work has rendered the model more believable by incorporating factors like zoning, property taxation, and local political incentives. Further, empirical work has shown that a main prediction of the Tiebout model–that the quality of local policies will be “capitalized” into housing prices–actually occurs, although this effect is stronger in rural areas and suburbs than in dense urban cities. The normative takeaway from the Tiebout model literature is clear: metropolitan regions should be divided into many local governments that are free to provide local public services in an unrestricted way, as this will ensure that mobile citizens receive their desired package of public services.
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