ATTACHMENT TO HOME AND EFFICIENT PURCHASES OF POPULATION IN A FISCAL EXTERNALITY ECONOMY

This paper examines the efficiency properties of an economy characterized by strategically competing regions and individuals with varying degrees of attachment to home, in an otherwise standard fiscal externality setting. Regional authorities may make interregional transfers in purchasing preferred populations. However, there is a range of distributions of resources over which neither region makes transfers. Nevertheless, all equilibrium allocations resulting from the Nash behavior of regional authorities, including those that involve no transfers, are efficient. Therefore, in contrast to the standard conclusions of the fiscal externality literature, there is no efficiency role for a central authority.