Transfers Between Regions with Local Public Goods

We report on the nature of a utility optimizing transfer from one regional govenment to another when local public goods are present. Computer examples reveal that small di¤erences in re-gional endowments result in large di¤erences in equilibrium out-comes for two regions, under optimal transfers. The scale e¤ect (lower tax charge per person for the same public good in more populous regions) leads to the small region generally providing transfers to the larger region. Key words: intergovenmental transfers, local public goods, inter-regional resource allocation JEL classi\u85cation: H410, H770, R280