How Should Suburbs Help Their Central Cities? Growth- and Welfare-Enhancing Intrametropolitan Fiscal Distributions

Cities are the location of the great majority of economic activity in the United States and produce a disproportionate share of output. It is thus critical for the economy’s long-term growth that cities operate efficiently. In this article, the authors review the basic determinants of output growth, with a focus on productivity growth in cities. The authors then explore the effects of a particular distortion in politically fragmented metropolitan areas. After documenting the interdependence of the suburbs and central city of a metropolitan area, the authors develop a model that embodies many of the empirically verified aspects, including agglomeration economies and public goods. After calibrating the model to outcomes for Philadelphia, the authors use it to simulate various policy changes. The authors conclude that, under the model, some kinds of fiscal redistributions can provide benefits in both cities and suburbs.