City competition for the creative class

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Weitere URL:	http://www.uclouvain.be/cps/ucl/doc/core/documents...
Dokumenttyp:	Arbeitspapier
Erscheinungsjahr:	2009
Ort der Veröffentlichung:	Mannheim
Sprache der Veröffentlichung:	Englisch
Einrichtung:	Fakultät für Rechtswissenschaft und Volkswirtschaftslehre > Finanzwissenschaft u. Wirtschaftspolitik (Janeba 2004-)
Fachgebiet:	330 Wirtschaft
Abstract:	Cities often provide amenities such as cultural institutions and quality education to attract highly talented people -- succintly termed by Florida (2002) as the creative class. We analyze both theoretically and empirically the role of publicly provided goods as amenities for the location decision of the creative class. In the theoretical part we show that in an open economy with competing cities spending on public goods capitalizes in the wages of immobile workers. In equilibrium, spending on amenities is higher in the open economy compared to the closed city, but utility of immobile workers is lower, as public good spending tends to be above the first best level. In the empirical part we combine a large survey data set of about half a million German individuals with data on city subsidies to theatres. We find that mobile individuals are better educated and find cultural offerings important for their mobility decision. Moreover, public subsidies have a positive effect on mobility of those individuals who find cultural offerings important. Consistent with the competition hypotheses, public subsidies to neighboring cities exert a negative effect.