Mark Thoma points us to Ed Glaeser on how Cities are treated Unfairly

Mark posts Ed's comments here.

Ed (with whom I often disagree on politics) is completely on the mark here. The question is, then, what to do about it? The core problems, as Ed sees it, are that driving is heavily subsidized, and that central cities are disproportionately responsible for providing services for the poor.

Solving the driving problem is not, in principle, difficult. Governments could use taxes and fees to internalize the cost of driving. Economists across the ideological spectrum agree that Pigou taxes (such as gasoline and carbon taxes) and congestion pricing of roads is a good idea. Politicians claim that people would rebel against such policies, but they have been implemented and are popular in Singapore and London. Michael Bloomberg would be willing to put such policies in place in New York, but he has not been able to get the permission of the New York State Legislature to do so. Washington, DC, which has to serve more workers per capita than any other large American city, should be allowed to put in place a commuter tax, but Congress forbids it from doing so. Funds from such fees and taxes could go to creating better transit.

The government services problem is more difficult. It might be appealing to set up metropolitan government structures, such as they have for Canadian cities, so that suburbs cannot use zoning to eliminate affordable housing and thus shirk their responsibilities to the poor. Toronto long ago merged with its suburbs, and it is a very successful city: economically dynamic and culturally vibrant.

But metropolitan government creates problems too. First, there is something to be said for having a myriad of municipalities compete with each other: such competition promotes efficiency and variety. For instance, here in the Washington area, there is a rich variety of suburbs, from urban places with town centers (such as Bethesda and Arlington) to places with large lots and large houses (such as Potomac). I like the former sort of places, but not the latter; there are people whose tastes are the opposite of mine. At the same time, when mayors and city councils are competing for tax bases, they have an incentive to do their job well.

Perhaps the best method for helping central cities is a shared revenue system whereby they get a foundation amount of revenue from an entity capable of redistribution (such as a state) but then pay their own way at the margin. The foundation amount should not just take into account differences in taxable land per capita (it is often lower in central cities than it is in suburbs), but also differences in required service provision.