35
Another reason for having cultural policy at a national or international level is that much of culture
generates by its very nature positive cross-border externalities. There may also be substantial economies
of scale. For example, small countries make do with one big opera house.
The theory of local public goods surveyed in Rubinfeld (1987) and Scotchmer (2002) point out the
importance of migration between local jurisdictions and has obvious applications to the making of a
cultural policy in Europe and, in particular, to the Lander of Germany. Tiebout (1956) argues that the
provision of local public goods can be viewed as an efficient competitive market for private goods where
people reveal their preferences for these public goods by ‘voting with their feet’. Efficiency requires
perfect information, costless migration, and no cross-border externalities. Efficiency also requires each
jurisdiction to be large enough, so there are enough people to produce the local public good at minimum
average cost. Free entry of people is a very strong assumption. However, one does see more skilled and
educated people migrating to bigger cities (London, Barcelona, Paris, Berlin and Amsterdam) with a
bigger supply of local cultural goods. Provincial towns get starved of their potential audiences and find it
more difficult to support high culture. The optimal size of a jurisdiction is indeed small if preferences are
homogenous for each region, cross-region spill-over effects are small and economies of scale are
unimportant. The club model of local public good provision trades off economies of scale versus
externalities arising from congestion. Groups of people with similar incomes and similar preferences
arrange themselves in a club. The Tiebout model allows citizens to have different incomes and uses a
local property tax to finance local public goods. Cultural public goods have an impact on land and
property values. Building a theatre, opera house or museum makes neighbourhoods more attractive
places to live and attract citizens who pay higher local taxes and push up land and house prices. An
interesting direction of future research in cultural economics is to analyse the effects of local cultural
infrastructure and activities on land and house prices and to estimate the demand for these goods in terms
of local socio-economic characteristics and local and intergovernmental support. Such demand studies
should focus on different attributes (e.g., international reputation versus popular appeal) of the local
cultural goods. A crucial complication is how to aggregate preferences, since people differ very much in
their taste for culture. Bergstrom and Goodman (1973) show that under certain strong conditions one can
postulate a simple majority-rule political process by estimating demand for cultural goods based on a
median-voter model. Rubinfeld (1987) discusses the empirical aspects of estimating such demand
functions for local public goods and the Tiebout model in some detail. The use of micro data on cultural
demand seems particularly promising.
An important issue for Europe is whether local governments should balance their budget, what
local public goods should be provided locally, and whether and how revenues ought to be shared between
levels of government. The literature on fiscal federalism and multiple layers of government attempts to