Pack it in — Encouraging city living


An incomplete but sometimes serviceable definition of the role of government sounds something like this: Governments exist to encourage activities with positive externalties and discourage activities with negative externalities.

This is usually a good place to start when evaluating the appropriate role of government regulation or taxation.  It helps explain why the government should care about climate change (the costs of my emitting carbon are borne by the everyone but the benefits are internal to me), but maybe focus less on drug enforcement (most costs are borne by the individual party partaking).

This post is not about a carbon pigovian tax (don’t worry, it’s coming) or our drug laws . It’s about a seeming mismatch in how we tax urban versus suburban/rural residents and they externatlities created by our choices of where to live.

Urban residents on average pay more federal taxes than federal social services received (saw the numbers a few months back but can’t find them again. Anyone know?) Suburban and rural residents receive more federal social services than taxes paid out. In our country, urban dwellers subsidize the suburbs and rural areas.

As Santiago Suarez (of Suarez and Colmes fame) pointed out, this is an artifact of the progressive income tax. The super wealthy tend to live in cities. They pay out taxes at a far greater rate than social services received. This is a perfectly reasonable empirical (positive) analysis on why this is. I want to focus on the normative: Which way should it be?

Let’s look at the externalities:

Point one:  Cities are the world’s economic engines. High densities of creativity, culture and knowledge  spur more creativity, culture and knowledge than the individual contributing factors would on their own. In other words, human-density is Viagra for human capital.The real learning in college happens in the crowded dorms and dining halls. The real economic and social progress happens in the crowded cities. There are a lot of factors at play here, but we can probably all agree on the general point.

Point two: Carbon emissions. Surburban households in Greater Boston buy 85% more gas than households within 5 miles of the city.  They also consume 20% more electricity. Cities on a per capita basis are better than surburban/rural areas for the environment

Point three: I would also guess cities are more efficient in their consumption of social services, but don’t have any data to support that at my fingertips.

So … in my normative judgment, suburban and rural areas should subsidize cities. Not the other way around. Fortunately, despite our tax policies it looks the trend worldwide is in the right direction.


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