A Search for Testable Implications of the Tiebout Hypothesis

Abstract

This paper derives an econometrically meaningful test of the Tiebout hypothesis and demonstrates that previous tests are inappropriate. The implications generated by two closely related models of voter-determined local fiscal variables and individual resident housing choices are compared. We demonstrate that when the Tiebout mechanism operates without interference, housing quantity and location choices are Pareto efficient, while they are not when frictions interfere with its operation. We show that the appropriate test requires joint estimation of a set of structural equations determining housing purchases and locational choices utilizing data for both median and nonmedian voters across metropolitan area jurisdictions.