Three essays on public finance and urban endogenous growth theory

The first core essay develops a basic endogenous growth model of the relationship between tax system and urban spatial structure. Public services are in the form of flow variable. I showed that the optimal income tax rate coincides with the growth-rate-maximizing tax rate, which is equal to the labor share in the production function. In such a setting, urban spatial structure never affects the optimal income taxation. Furthermore, I showed that the optimal capital income tax rate is zero and the optimal labor income tax rate is one because capital income taxation distorts the household's saving decision and the labor supply is perfectly inelastic. It is also shown that the socially optimal output growth rate and city size are unambiguously greater than the decentralized one.; The second core essay analyzes the transitional dynamics of the city. In a socially-planned economy, I showed that when the initial ratio of private and public capital stocks happens to be equal to the socially efficient level, an urban economy is always on the balanced growth path. When the ratio deviates from the socially efficient ratio, either private or public investment is not taken place until the ratio achieves the socially efficient one. In the decentralized economy, I derived the condition for the existence of the balanced growth equilibrium and explored the properties of transitional dynamics. Furthermore, by focusing on the balanced-equilibrium, I showed that the socially optimal population size, city size, growth rate are all greater than those attained in the decentralized equilibrium, except for the tax rate, which is smaller in the social optimum. Therefore I can conclude that most of the results obtained under the flow-variable assumption carry over to the case of stock-variable public capital along the balanced-growth path.; The third core essay examines the interaction between market imperfection and tax-financed government spending. In this setting, public services are treated as a fixed-cost-saving technology in the monopolistically competitive intermediate input sector. One of the major results different from the first essay is that the optimal income tax rate is affected positively by the degree of input producer's monopoly power. Furthermore, when both labor- and capital-income taxes can be imposed, the taxation on capital income is partly justified because of the market imperfection. I also showed that the larger the effect of tax on fixed-cost saving is, the higher the tax rate on capital is imposed.