Community income distributions in a metropolitan area

We extend de Bartolome and Ross [C.A.M. de Bartolome, S.L. Ross, Equilibrium with local governments and commuting: Income sorting vs. income mixing, Journal of Urban Economics 54 (2003) 1–20] to the case when the income distribution in the metropolitan area is a continuous distribution. In particular, we consider a circular central city surrounded by a suburban community. All households must commute to the metropolitan center and public service levels differ in the two jurisdictions. There is intra-jurisdictional and inter-jurisdictional capitalization. Our model has an equilibrium in which the income distributions of the central city and of the suburban community do overlap. Our finding contrasts with the traditional finding of Alonso–Mills–Muth-type models of spatial sorting and of Tiebout-type models of fiscal sorting, both of which have been shown to predict that the income distributions of the two communities do not overlap. In addition, the model explains the fixedness in jurisdictional boundaries.