Local public goods

The aim of the project is to study the economic impact of PIGS provision. The analysis draws on rich data for PIGS in German municipalities. In a first step, we empirically determine the effect of PIGS on corporate location and investment decisions. In doing so, we account for the direct impact as well as for externalities of PIGS provision on corporate activity in neighboring jurisdictions. The latter allows us to assess and quantify the welfare consequences of interjurisdictional fiscal competition and to determine the spatial impact of centrally provided PIGS on local development. Furthermore, we assess whether communities can reduce exposure to competitive interjurisdictional pressure by differentiating their PIGS from other communities. The analysis further explores interactions between PIGS provision and agglomeration economies. In particular, we assess whether and to what extent the impact of PIGS provision on firms’ location and investment decisions (and thus interjurisdictional competition) is attenuated in the presence of agglomeration economies. In a second step, we study who reaps the economic benefits from PIGS provision by identifying the causal effect of PIGS on workers’ wages, property prices and corporate profitability. As sketched above, the outlined questions have so far largely been ignored in the empirical public economics literature.