THE PRODUCTIVITY AND SUPPLY OF URBAN INFRASTRUCTURES

The paper examines the productivity and supply of urban infrastructure capital using a panel data set of 85 West German cities. A simple theoretical framework is used to infer the impact of infrastructure services on private production cost. Assuming local firms to operate under perfect market conditions we derive an optimal local infrastructure supply rule and an optimal business capital tax rate. The empirical part of the paper proceeds by a two step procedure. In a first step we examine the productivity of urban infrastructure service provision by evaluating the cost reductions that are associated with the supply of infrastructures. In a second step, the adjustment of the urban infrastructure capital stock and the urban business tax rate is estimated, incorporating the estimated monetary productivity effects as well as some simple inter-jurisdictional competition variables into the empirical model.