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We study the welfare implications of public good agglomeration externalities in an economic geography framework. We first present new empirical evidence on scale economies in the consumption of local public goods using administrative panel data on French cities. We estimate strong agglomeration gains with an elasticity between 0.46 and 0.56. We then characterize the optimal spatial transfers achieving efficient population distribution in a spatial equilibrium model with endogenous public goods where workers have unobserved location preferences. In standard applications of our framework, we show that the government can improve upon the laissez-faire only when preference heterogeneity is weak enough. When heterogeneity is strong enough, place-based transfers unambiguously create winners and losers. Finally, we argue that the interplay between agglomeration forces and location preferences may justify place-specific transfers on horizontal or categorical equity grounds. We empirically investigate the relevance of these equity concerns in France by investigating the structure of the welfare weights rationalizing observed situations.  Ceteris paribus, the underlying social welfare function compensates low-density places.

By integrating social equity concerns and deviating from a traditionally more utilitarian designof transport networks, can cities reduce spatial inequalities ? This paper relies on an extensivemulti-city Light Rail Transit (LRT) building program of the last two decades in France as well as anovel geocoded individual unemployed database to assess the effects of opening of a new transportoption on individual unemployment trajectories and local social mixity. We find no evidence of anyimprovement in individual unemployment trajectories of the residents of the treated neighborhoodsaround the arrival of LRT. In the medium term we find effects on the housing market consistent withcapitalization of accessibility gains as well as a change in income composition of renters althoughgentrification is limited by the large share of social housings

Presented in : Urban Economics Association 2019 meeting, Amsterdam; International Transport Economics 2019 meeting, Paris

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