Urban dynamics and the role of public policy: An analysis of urban hardship and fiscal institutions

The differential in urban development both across and within U.S. metropolitan areas has been widely recognized since the mid-1960s. Many large cities in the Northeast and Northcentral regions not only ceased to grow but have been declining, while a number of cities in the South and West emerged into front-rank status and have been continuously growing. In their recent hardship study, Nathan and Adams (1989) observed strong evidence of increasing disparities in urban conditions across and within major metropolitan areas during the 1970s.;Despite the recognition of the trend of increasing disparities, little attention has been given to the dynamics underlying urban change and their implication for public policy. In this study, a three-sector dynamic model is developed to explain the dynamic process of population change and to investigate the role of various dynamic elements--private and public sectors factors--in the process. The theoretical model shows that the private sector affects population change through the interaction of self-adjusting and self-reinforcing forces, determining an equilibrium population. The public sector, on the other hand, can induce a structural change in the growth path of population by affecting the location decisions of individuals, and consequently change the equilibrium level of population.;Empirical results provide strong evidence for the existence of self-reinforcing and negative-sum phenomena in our urban system. The self-reinforcing process of urban change implies a continuous worsening or expansion, which is caused by the negative relationship between hardship and growth. The negative-sum relationship between the central city and the suburbs reflects the negative effect of the city's deterioration on the growth of the whole metropolitan area.;The public sector estimation results provide an insight into a variety of policy options that state and local governments can take regarding the growth of the central cities and their suburbs. Expansion and diversification of local government revenue-raising capacity are suggested to be pursued through self-help support policies which lessen tax burdens on local residents. In addition, various policies governing burden sharing among localities in delivering public services and managing service agencies are recommended for the long-term vitality of both the central cities and the suburbs.