"Reverse" Intergovernmental 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 differences in re- gional endowments result in large differences in equilibrium out- comes for two regions, under optimal transfers. The scale effect (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