Choosing a place to live and a workplace

Abstract

We study how fiscal policies and commuting costs determine the geographical distribution of workers and households in an economy. We characterize equilibrium outcomes in a simple two-region model with commuting costs, local public goods, and local infrastructure. We also provide a short survey of the related economic literature that discusses other important factors driving the localization decisions of agents. Finally, we argue that the issues raise in this paper play a significant role in the geographic distribution of economic activity in the Greater Buenos Aires urban area of Argentina.