When competitive landowners/developers control incorporation and zoning decisions, efficient patterns of development emerge. When, by contrast, early arrivals control policy, they may impose zoning restrictions that force later entrants to pay, via the property tax, a disproportionate share of the cost of providing public services. If new arrivals are sufficiently poor, they may choose to reside outside the community while higher-quality land within the community remains unoccupied. This inefficient and exclusionary outcome can be an equilibrium. If boundaries, once drawn, are irreversible, the ex ante introduction of a seemingly natural compensation scheme may not remedy the problem.
Dennis Epple, Thomas Romer, and Radu Filimon
Journal of Public Economics
March 1998
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