Fiscal Interactions of Central City and Suburbs: The Case of Zurich

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Abstract
One possible explanation for the migration from the central city to fiscally independent suburbs is a lack of equivalence between taxation and perceived benefits from local public goods. Spill-outs to suburbs add to this process and may lead to fiscal erosion of the central city. Piecemeal evidence is presented that this problem applies to the city of Zurich. Various possible remedies are discussed, one of which has been applied in Zurich, though not successfully. It is shown theoretically and empirically why this failure occurred. Alternative countermeasures are suggested and an account of how Zurich government officials reacted is supplied.

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