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Robert W. Wassmer
[Paper rst received, February 2001; in nal form, January 2002]
Summary. Do the ways that local governments raise own-source revenue and/or use urban
growth boundaries exert distinct in uences on the occurrence of retail activity outside a
metropolitan area’s central places? This question is addressed in this paper through a regression
analysis that also accounts for economic factors that provide clear reasons for retail activity to
locate in non-central places. Results indicate that state-wide reliance by municipalities on some
forms of own-source revenue exert signi cant positive in uences on retail sales in non-central
places in metropolitan areas in the western US. ‘Excessive’ retail decentralisation generated
through this ‘ scalisation of land use’ is presented within the widely discussed concept of ‘urban
sprawl’. The continuing presence of one form of urban growth boundary is also found to reduce
retail decentralisation.
1. Introduction
Perhaps diffusion is too kind a word … In groups as the Sierra Club and the National
bursting its bounds, the city actually Association of Homebuilders took an active
sprawled and made the countryside stance against sprawl and embraced an urban
ugly … uneconomic [in terms] of services development agenda based on the concept of
and doubtful social value (Earle Draper, ‘smart growth’.
Tennessee Valley Authority, 1937). Given the renewed national interest in the
US in spatial patterns of urban growth,
The pejorative use of the term ‘sprawl’ has prominent urban economists such as Gordon
been traced by Black (1996) back to this and Richardson (1997), Mills (1999) and
1937 quote made to a national conference of Brueckner (2000) have weighed in on the
planners. Urban planners have retained this issue with articles that summarise an econ-
term as part of their lexicon and apply it to omic approach to de ning what constitutes
undesirable patterns of urban land use. Be- smart urban growth. These economists em-
ginning in the early 1990s, such disparate phasise the point that the metropolitan decen-
Robert W. Wassmer is in the Graduate Program in Public Policy and Administration , Californi a State University, Sacramento,
Californi a 95819– 6081, USA. Fax: 916 278 6544. E-mail: rwassme@csus.edu . Support came from a sabbatica l leave from California
State University and grants from the Lincoln Institute of Land Policy, the Californi a State University Faculty Research Fellows in
associatio n with the California Senate Of ce of Research, and the Californi a Institute for County Government. The paper has bene ted
from comments received from Jan Brueckner, John McDonald, Stanley Longhofer, two anonymous referees and seminar participant s
at the Lusk Center for Real Estate at the University of Southern Californi a and a Lincoln Institute conference on ‘The Property Tax,
Land Use and Land Use Regulation ’. The views expressed here are those of the author.
tralisation of people and economic activity in pendently to increase non-central retail sales
the US has occurred for well over 50 years in a metropolitan area, then it can be con-
and has been driven in large part by popu- sidered a driver of excessive retail decentra-
lation increases, real income increases and lisation or sprawl. At the same time, if the
decreases in the real cost of automobile use. presence of an urban growth boundary re-
To most economists, decentralisation is only duces non-central retail sales, then it has
an undesirable pattern of urban land use if achieved its stated policy goal of slowing the
the total costs it imposes upon a metropolitan amount of retail decentralisation that would
region are greater than the total bene ts gen- have occurred without it.
erated from it. As a complete reading of this paper re-
Conversely, other analysts like Ewing veals, the regression analysis shows that
(1997), Downs (1999) and Myers and Kit- state-wide measures of reliance by munici-
suse (1999) have pointed out that a purely palities on two forms of own-source revenue
market-based approach to de ning excessive exert a positive in uence on the amount of
spatial growth ignores the institutional en- non-central retail activity in metropolitan
vironment in which economic actors in a areas in the western US over the period
metropolitan area make land-use decisions. 1977 – 97; while the continuing presence of
These analysts highlight the fact that govern- one form of urban growth boundary reduces
ment institutions in uence local land-use de- the amount of non-central retail activity.
cisions and can generate or slow urban The concept of urban retail sprawl is de-
decentralisation. The objective of this paper veloped in the next section of the paper in a
is to determine whether the state-wide sys- discussion of the ways that both planners and
tem of local public nance and the use of economists have thought about it. Section 3
urban growth boundaries work to further or grounds the regression analysis in theory by
deter retail decentralisation in a metropolitan reviewing previous literature on the determi-
area. nants of retail location in a metropolitan area.
‘Fiscalisation of land use’ implies that the This section also contains a discussion of
system of local public nance exerts an why the way that local governments raise
in uence on local land-use decisions. Re- revenue in a state could in uence the in-
gression analysis is used here to test whether trametropolitan location of retail activity in
the real dollar value of retail activity in a that state. Section 4 of the paper offers a
metropolitan area’s non-central places is in- description of differences in the degree of
dependently in uenced by relevant measures retail decentralisation in 54 metropolitan ar-
of local government revenue reliance. This eas in the western portion of the US for the
measure of the scalisation of land use is years 1977, 1987 and 1997. Section 5 pro-
appropriately sought after controlling for vides background on the regression test used
non-central-place population, income, age to determine if state-wide averages for mu-
distribution, farmland price, previous growth nicipal revenue reliance and/or the presence
rate and the presence of different forms of of urban growth boundaries exert measurable
urban growth boundaries. The explanatory in uences on the location of retail activity in
variables contained in the regression analysis a metropolitan area. Section 6 contains a
(except those representing local revenue discussion of the regression results. The im-
reliance and urban containment policies) rep- plications of the research are in the conclud-
resent factors that—many would argue— ing section 7.
ttingly drive the non-central location of
retail activity in a metropolitan area. From
2. Urban Retail Sprawl
the social perspective of what is best for the
entire region, local revenue reliance is a poor Urban planners, and increasingly the general
basis for determining retail location deci- public, use the term sprawl to mark undesir-
sions. If local revenue reliance is found inde- able forms of urban land use. Observing this
FISCALISATION OF LAND USE 1309
which reduced ties to a central shopping ation. The hesitancy of jurisdictions to desig-
location. 1 nate agricultural land for non-agricultural
In a review of the economic thinking on uses encourages leapfrog development. Mis-
the causes of metropolitan suburbanisation, czynski (1986) popularised the use of the
Miezkowski and Mills (1993) nd valuable phrase ‘ scalisation of land use’ in Califor-
insights offered by both the natural evolution nia policy circles to describe what he increas-
and scal/social approaches. The natural ingly expected to happen after California’s
evolution approach emphasises the post-Proposition 13 abandonment of property
signi cance of income, population, transport, taxation as a discretionary source of local
and technological changes in determining the revenue. Innes and Booher (1999) point to
degree of decentralisation in a metropolitan the complex and fragmented system of local
area. The scal/social approach is a general- nance in California, with its heavy reliance
isation of Tiebout’s (1956) model of ‘voting on sales taxation as a source of local discre-
with one’s feet’ and points to increased sub- tionary revenue, as the single most important
urbanisation as partially the result of citi- factor driving local land-use decisions in the
zens’ desires to form and fund more state. Atkinson and Oleson (1996) believe
homogeneous communities. To do this, sub- the automobile to be the major culprit of
urban communities use land-use controls and sprawl, but maintain that this would not have
subsidies to attract residents and business been possible without complementary local
that offer a scal surplus and do little to nance policies. Kotin and Peiser (1997)
damage the local environment. The scal/ have looked at public– private partnerships
social approach is particularly relevant when for high-volume retailers and the degree that
considering how local revenue reliance could municipalities bene t from them. In a mono-
generate retail decentralisation. graph-length study of sales taxation in Cali-
Municipal revenue from retail activity, fornia, Lewis and Barbour (1999) conclude
that in most instances requires a relatively that local sales tax reliance has in uenced
small amount of local government services local land-use decisions in the state.
and generates relatively little environmental In addition, Brueckner and Kim (2000)
damage, offers a good choice of funding for demonstrate that the theoretical in uence of
local services. If suburban communities ac- local property tax reliance on the generation
tively seek retail activity for the purpose of of metropolitan decentralisation is indeter-
the scal surplus it generates, then greater minate. Greater reliance on local property
state-wide reliance on a municipal revenue taxation reduces individual housing con-
instrument that generates a local scal sur- sumption, which raises population density
plus through greater local retail activity may and reduces urban sprawl. Concurrently,
generate greater retail decentralisation. Local greater local property taxation reduces the
scal structure is unlikely to induce more intensity of land development, lowers popu-
retail activity in a metropolitan area, but it lation density and encourages urban sprawl.
can induce changes in where it locates. A simulation using reasonable real-world
Within a metropolitan area, non-central values suggests that the likely in uence of
places draw excessive retail activity from the greater local property taxation in generating
central places where historically it had been urban sprawl, through its in uence on capital
located.2 use, is slightly positive.
Other researchers have also recognised Finally, Brueckner and Fansler (1983)
that local scal factors can contribute to the conducted one of the only regression studies
generation of urban decentralisation. Harvey of the determinants of the size of a US urban
and Clark (1965) assert that local reliance on area. Using 1970 data and relying on tra-
property taxation discourages the designation ditional urban theory, they regressed the cen-
of land for a non-agricultural use because sus-de ned size in square miles of the 40
once done the land is subject to higher tax- largest urbanised areas in the US against the
FISCALISATION OF LAND USE 1311
urbanised area’s population, median income, Idaho, Montana and Wyoming are not in-
rent paid on agricultural land and proxies for cluded because the metropolitan develop-
commuting costs. The empirical analysis that ment patterns in these three states are very
follows builds upon Brueckner and Fansler’s different in comparison to the western states
study by including state-wide measures of retained in the sample used here.3
municipal revenue reliance in a regression Fifty-four metropolitan areas are used in
designed to explain retail activity in non- the analysis. A metropolitan area consists of
central places in western US metropolitan the relevant component counties in the 1990
areas. Before the method to do this is de- Census de nition of either a Metropolitan
scribed in greater detail, the next section of Statistical Area (MSA) or a Primary Metro-
the paper offers a description of areas in- politan Statistical Area (PMSA).4 Since the
cluded in the study and differences over time focus of this paper is retail activity in subur-
in their non-central place retail activity. ban locations, the suburban area within a
metropolitan area is the component counties
in a MSA or PMSA, less the ‘central places’
4. Metropolitan Retail Decentralisation in
included in the 1990 de nition of urbanised
the Western US
areas in a metropolitan area.5 Central places
An empirical study of the degree of metro- are considered by the Census to be the domi-
politan retail decentralisation must begin nant employment and residential centres in
with a unit of analysis. For this study, it is each urbanised area. For instance, the subur-
the 61 metropolitan areas in what the Census ban area in the San Diego MSA would be
Bureau de ned in 1990 as the continental San Diego County less the cities of Coro-
western US, less the 7 metropolitan areas in nado, Escondido and San Diego. Table 1
Idaho, Montana and Wyoming. The analysis contains a list of the 54 metropolitan areas in
is limited to metropolitan areas in the West the sample, the areas’ component counties
for a few reasons. The rst is that 6 of the 8 and the central places that are excluded from
states de ned as western enacted state-wide these counties to create the de nition of a
ballot box or legislative restrictions on the metropolitan area’s non-central places that is
local use of property taxes between 1977 and used here. This designation of suburbia is an
1997. Through Proposition 13 (1978), Mea- attempt to account for the polycentric nature
sures 5 and 47 (1990 and 1996) and Amend- of most US metropolitan areas through the
ment 1 (1992), California, Oregon and use of existing data sources.
Colorado voters all used the citizen initiative Table 2 offers a comparison of the ratio of
to limit local property taxation. In Arizona, non-central place retail sales to total metro-
Nevada and Utah, the state legislature took politan area retail sales for all 54 metropoli-
similar steps. (Sokolow (2000) offers a com- tan areas in the sample.6 The rst three data
prehensive survey of property-tax limitation columns in Table 2 illustrate the variation in
in the western US. See Chapman (1998) for the degree of retail sales decentralisation
a summary of the local public nance conse- across metropolitan areas and within a
quences of California’s 1978 passage of metropolitan area over time. The last two
Proposition 13.) These restrictions, which data columns in Table 2 indicate the percent-
Sokolow (2000) classi es as harsher than in age change in retail decentralisation for each
any other region in the US, offer natural area, for the periods 1977– 87, and 1987 – 97.
experiments by which to test the in uence of The top eight data rows in this table report
changes in state-wide municipal scal struc- the averages for each state using the metro-
ture on metropolitan retail decentralisation. politan area as the unit of observation.
Furthermore, most metropolitan areas in the Metropolitan areas in Arizona, on average
western US grew up in an era of rising between 1977 and 1987, experienced a slight
populations, rising real incomes and declin- 4 per cent decrease in metropolitan retail
ing transport costs. Metropolitan areas in sales in non-central places. This measure
1312 ROBERT W. WASSMER
Table 1. Urban area de nitions for the western US, as of 1990
Phoenix – Mesa AZ, MSA Maricopa AZ, Pinal AZ Mesa AZ, Phoenix AZ,
Scottsdale AZ, Tempe AZ
Tuscon AZ, MSA Pima AZ Tucson AZ
Yuma AZ, MSA Yuma AZ Yuma AZ
Bakers eld CA, MSA Kern CA Bakers eld CA
Chico– Paradise CA, MSA Butte CA Chico CA
Fresno CA, MSA Fresno CA, Madera CA Fresno CA
Los Angeles– Long Beach Los Angeles CA Lancaster CA, Long Beach
CA, PMSA CA, Los Angeles CA, Pasadena CA
Merced CA, MSA Merced CA Merced CA
Modesta CA, MSA Stanislaus CA Modesto CA, Turlock CA
Oakland CA, PMSA Alameda CA, Contra Alameda CA, Berkeley
Costa CA CA, Oakland CA
Orange CA, PMSA Orange CA Anaheim CA, Irvine CA,
Santa Ana CA
Redding CA, MSA Shasta CA Redding CA
Riverside– San Bernardino Riverside CA, San Hemet CA, Palm Dessert
CA, PMSA Bernardino CA CA, Palm Springs CA,
Riverside CA, San
Bernardino CA,
Temecula CA
Sacramento CA, PMSA El Dorado CA, Placer CA, Sacramento CA
Sacramento CA
Salinas CA, MSA Monterey CA Monterey CA, Salinas CA
San Diego CA, MSA San Diego CA Coronado CA, Escondido
CA, San Diego CA
San Francisco CA, PMSA Marin CA, San Francisco San Francisco CA
CA, San Mateo CA
San Jose CA, PMSA Santa Clara CA Gilroy CA, Palo Alto CA,
San Jose CA, Santa
Clara CA, Sunnyvale CA
San Luis Obispo– San Luis Obispo CA Atascadero CA, Paso
Atascadero– Paso Robles Robles CA, San Luis
CA, MSA Obispo CA
Santa Barbara– Santa Santa Barbara CA Lompoc CA, Santa
Maria– Lompoc CA, MSA Barbara CA, Santa Maria CA
Santa Cruz – Watsonville Santa Cruz CA Santa Cruz CA,
CA, PMSA Watsonville CA
Santa Rosa CA, PMSA Sonoma CA Petaluma CA, Santa
Rosa CA
Stockton – Lodi CA, MSA San Joaquin CA Lodi CA, Stockton CA
Vallejo– Fair eld– Napa CA, Napa CA, Solano CA Fair eld CA, Napa CA,
PMSA Vacaville CA, Vallejo CA
Ventura CA, PMSA Ventura CA San Buenaventura
(Ventura) CA
Visalia– Tulare – Porterville Tulare CA Porterville CA, Tulare CA
CA, MSA
Yolo CA, PMSA Yolo CA Davis CA, Woodland CA
Yuba City CA, MSA Sutter CA, Yuba CA Yuba CA
Boulder – Longmount CO, Boulder CO Boulder CO, Longmount CO
PMSA
Colorado Springs CO, El Paso CO Colorado Springs, CO
MSA
FISCALISATION OF LAND USE 1313
Table 1. Continued
Central places (cities)
Metropolitan area name Counties in metropolitan area in metropolitan area
rose to a 45 per cent increase between 1987 5. State-wide Local Revenue Choices and
and 1997. By contrast, metropolitan areas in Retail Decentralisation
Utah on average experienced a 22 per cent
increase in the decentralisation of retail ac- The dependent variable for the empirical
tivity between 1977 and 1987, and hardly study discussed next is the real value of retail
any change between 1987 and 1997. Other sales in non-central places for the 54 metro-
than that there is a great deal of variation in politan areas described in the previous sec-
the degree of non-central place retail activity tion, for the years 1977, 1987 and 1997.7 The
occurring in different western metropolitan pooling of cross-sectional and time-series
areas and over time, it is hard to draw any data allows for variation in non-central retail
speci c conclusions from the information in sales to occur across metropolitan areas and
Table 2. A regression analysis of the deter- within an area over time. These data enable a
minants of suburban retail activity is necess- regression test of whether state-wide aver-
ary to comprehend the observed variation. ages for pertinent forms of own-source
1314 ROBERT W. WASSMER
Table 2. Distribution of retail sales and changes in retail sales for non-central places in metropolitan areas
in the western US
Percentage change in
Non-central place retail non-central place retail
sales/metro retail sales sales/metro retail sales
Table 2. Continued
Percentage change in
Non-central place retail non-central place retail
sales/metro retail sales sales/metro retail sales
municipal revenue reliance exert signi cant on suburban retail activity is not the focus of
in uences on the amount of non-central retail this investigation.9 Further re nement of
sales in a state’s metropolitan areas. A model Brueckner and Fansler’s model of urban size
of what determines non-central retail sales in is necessary to assess accurately the in uence
a metropolitan area is necessary to formulate of local government scal institutions on non-
this regression test. The model that follows central retail activity. This is in the form of
builds upon the earlier work of Brueckner and controlling for demographic differences in the
Fansler (1983). type of population located in non-central
Economic theory indicates that the real places, the previous decade’s growth in non-
dollar value of retail sales in the non-central central population and any forms of urban
portion of a metropolitan region increases as growth controls that may be present. The
non-central population and real household model used to delineate the regression analy-
income increase. Suburban retail activity may sis is thus
be slowed by a higher acquisition price for
agricultural land upon which to build new
Retail salesi, t 5
retail centres. The availability of transport
options can also in uence where people in a f (Incomei, t, Populationi, t, Previous dec-
metropolitan area shop. These four factors ade’s population growthi, t, Presence of
(population, income, price of agricultural land the urban containment policyi, t, Price of
and transport options) are what Brueckner agricultural landi, t, Percentage popu-
and Fansler expect to in uence the size of an lation less than age 18i, t, Percentage
urbanised area.8 With the exception of proxies population greater than age 64i, t,
for transport options, the model of suburban Percentage state-wide discretionary mu-
retail sales used here also relies on these same nicipal revenue from property taxesi, t,
causal factors. Metropolitan transport options Percentage state-wide discretionary
are excluded for two reasons: demographics, municipal revenue from general sales
population and income largely determine the taxesi, t, Percentage state-wide discre-
transport options available in a metropolitan tionary municipal revenue from other
area; and, the in uence of transport options taxesi, t)
1316 ROBERT W. WASSMER
where, i 5 1, 2, 3, … , or 54 (for each metro- that retailers offer cities in California, in-
politan area’s non-central places); and clude local sales taxes, property taxes and
t 5 1977, 1987 or 1997. business licence fees (which fall into the
The degree of state-wide reliance on dif- category of other taxes used above) as the
ferent forms of own-source municipal rev- three forms of city revenues that need to be
enue can in uence the amount of retail accounted for.
activity in non-central metropolitan places The US Census of Governments divides
through local scal zoning and the offering municipal own-source revenue into two cate-
of local economic development incentives. gories: current charges/miscellaneous rev-
Municipal revenue reliance for a speci c cat- enue and taxes. The census describes current
egory is calculated as a percentage of locally charges as fees for speci c local services
generated revenue from sources most likely delivered to a local citizen or business. For
to be in uenced by local land-use decisions. the purpose of this study, charges equal cur-
The term used here to describe this form of rent charges plus special assessments. Spe-
local revenue source is ‘discretionary’. Dis- cial assessments are included with charges
cretionary revenue sources include locally because of their census de nition as
generated property taxes, sales taxes, other “compulsory contributions collected from
taxes and user charges/special assessments.10 owners of property bene ted by special pub-
The chosen term discretionary also refers to lic improvements”. The census includes in-
the fact that if a state-wide policy were insti- terest earnings, special assessments, sale of
tuted to reduce percentage reliance on one of property and other general revenue under its
these local revenue instruments, the percent- de nition of miscellaneous revenue. With the
age reliance on the others would be likely to possible exception of special assessments,
have to increase. Only three of the four these forms of miscellaneous revenue are
discretionary revenue sources are accounted unlikely to generate a local scal surplus
for in the regression model because the third, through greater retail activity and are ex-
Percentage state-wide discretionary munici- cluded from the regression model.
pal revenue from charges, equals 100 per The census classi es municipal taxes in
cent less the sum of the included three. the forms of property, sales, individual in-
As widely documented, municipalities and come, corporate income, motor vehicle li-
unincorporated areas of counties in the US cence, and other taxes. None of the eight
regulate local land uses with an eye on the western states under consideration here al-
scal bottom-line.11 Municipal and county lows local personal or corporate income
governments in the US also use local incen- taxes. All other forms of local taxation, ex-
tives to attract desirable land uses within cept motor vehicle taxes, are accounted for in
their boundaries.12 Both of these activities the regression analysis because they offer the
can result in greater local retail activity in a potential for a local suburban government to
metropolitan area’s non-central places than bene t from a scal surplus gained through
economic factors alone would dictate. Differ- the attraction of greater retail activity within
ent degrees of state-wide reliance, on differ- its boundaries.13
ent forms of own-source municipal revenue, Brueckner and Kim (2000) have theoreti-
could thus yield different amounts of scal cally shown that the expected in uence of
surplus generated by local land devoted to greater local reliance on property taxation on
retail activity. The greater the reliance on a urban decentralisation through capital use is
municipal revenue source that generates a uncertain. Aside from altering capital use,
local scal surplus from local retail activity, greater local reliance on property taxes can
the more likely it will be that local of cials also encourage local land-use decisions that
zone for retail land uses and use local incen- are more likely to generate a scal surplus
tives to encourage it. Kotin and Peiser through property taxation (property tax rev-
(1997), in their study of the scal bene ts enue greater than the cost of local services
FISCALISATION OF LAND USE 1317
required by the retail property). The containment policy (UCP) exists in a metro-
in uence that this has on suburban retail politan area and, if it does, for how long has
activity depends upon how retail does in it been in existence. UCPs are commonly
generating a property tax scal surplus rela- referred to as urban growth boundaries and
tive to alternative uses (housing or manufac- are designed to slow the degree of decentra-
turing) for a municipality’s land.14 lisation in a metropolitan area that would
Throughout a state, greater average local have occurred over time. The presence of a
reliance on general sales taxation as a source UCP could thus reduce the amount of non-
of discretionary local revenue offers a reason central retail activity in a metropolitan area.
for suburban governments in the state to lure The regression accounts for the three dif-
retailers away from traditional business dis- ferent types of UCP catalogued by Nelson
tricts in central-place communities and in- (2001) in his recent examination of these
crease the amount of retail sales in the policies. The rst type is ‘closed-region con-
suburbs. In support, Lewis and Barbour tainment’. Nelson de nes this as metropoli-
(1999) found through a survey of of cials in tan-wide, explicitly preserving land at the
300 California cities, that asked them to rank urban fringe and attempting to shift displaced
18 different motivations for evaluating the development back to the centre. The second
desirability of various forms of development type is ‘open-region containment’. It is also
projects, that ‘new sales tax revenues’ always metropolitan-wide, does nothing explicitly to
nished rst or second in terms of the pos- preserve open space at the fringe, but does
ition most often given. Interestingly, only the endeavour to shift development back to the
36 central-city of cials in the sample ranked centre of the urban area. The nal type of
sales tax considerations consistently lower. UCP is ‘isolated containment’. By Nelson’s
The lure of collecting other taxes, like a de nition, a policy of isolated containment
licence fee or other business tax, from retail- does not exist on a metropolitan-wide basis,
ers offers an additional motivation for non- intends only to preserve limited land outside
central-place governments to draw retail some jurisdictional boundaries and does
activity away from traditional central-place nothing to shift development occurring out-
locations. side these intrametropolitan boundaries back
Economic theory indicates that suburban to the urban core.
income and population should exert a posi- As taken from Nelson, a description of the
tive in uence on suburban retail sales, while western metropolitan areas that had one of
the in uence of the price of agricultural land the three urban containment policies in place
in the metropolitan area should be negative. in 1997 is given in Table 3. Further investi-
After a previous decade’s surge in population gation yielded the recorded information on
growth, retail developers may have not been the approximate year that each of these UCPs
able to keep pace with the amount of devel- began. Since development patterns are more
opment speci ed by population and retail likely to be constrained by an urban contain-
sales may be smaller, holding other factors ment policy the longer it has been in place,
constant, in an area that previously experi- the explanatory variables in the regression
enced high population growth. Likewise, include three dummy variables for whether a
suburban areas with a higher percentage of type of UCP exists and three other variables
senior citizens or families with children are that account for the number of years since a
likely to exhibit different retail consumption certain UCP began in the metropolitan area.
patterns; however, the directions of these The high level of variation in own-source
in uences are uncertain.15 municipal revenue reliance across states and
The regression model used to explain non- across time is indicated by the values
central retail activity in a metropolitan area recorded in Table 4. For instance, on average
also includes six explanatory variables that between 1977 and 1997, municipal govern-
account for whether a certain type of urban ments in New Mexico drew only 22.4 per
1318 ROBERT W. WASSMER
Table 3. Year that a type of urban containment policy (UCP) began in a western metropolitan area
Type of UCP
cent of their discretionary local revenue from The top of Table 5 lists the mean and
property taxation. The comparable gure for standard deviation of the regression’s depen-
municipal governments in Oregon was 52.6 dent variable in millions of dollars. The same
per cent. For general sales taxation over the descriptive statistics are given for each of the
same 20-year period, municipal governments explanatory variables in the table’s rst data
in Oregon relied on it for none of their column. The non-central-place values of me-
own-source revenue, while municipal gov- dian household income and population are
ernments in Colorado gained 41.1 per cent of calculated from the US Department of Hous-
their discretionary revenue from it. As well, ing and Urban Development’s State of the
within-state variations over time for some Cities Data System.16 Actual income values
states were large. In 1977, local governments were not available for 1997 and had to be
in California drew 41.7 per cent of discre- extrapolated from the available 1979 and
tionary revenue from property taxation; by 1989 values. Interpolation from the available
1997, this value had fallen to 25.7 per cent. decennial census years was also necessary to
General sales taxation totalled 12.1 per cent determine population and income values for
of New Mexico’s own-source municipal rev- 1967, 1977 and 1987. The 1997 population
enue in 1977; by 1997, it had risen to 37.0 value is an estimate provided by the census.
per cent. Nevada municipalities relied on Various editions of the US Census City and
other taxes for 22.9 per cent of their discre- County Databook offer the data necessary to
tionary revenue in 1977; by 1997, this gure calculate the desired measures of metropoli-
had fallen to 15.0 per cent. tan age distribution. Interpolation yields the
FISCALISATION OF LAND USE 1319
Table 4. Percentage of state-wide discretionary municipal revenue from component sources for
western US states
Year and state Property taxes General sales taxes Other taxes Charges
1977 and 1987 values, while extrapolation To control for factors xed across all ob-
results in the values for 1997. A suitable served years, but that vary by metropolitan
proxy for the real price of agricultural land in area, a few regression options are available
a metropolitan area’s non-central places is (see Kennedy (1992, pp. 222– 223) for a fur-
the real value of agricultural products sold in ther description of these possibilities). The
the metropolitan area divided by the number rst is the ‘ xed-effect’ method of dropping
of agricultural acres in the area. These the constant term and including a set of
amounts come from the US Census of Agri- dummy variables representing each of the
culture. metropolitan areas in the sample. This allows
A concern for the regression analysis is different constant terms to control for the
how to control for non-measurable factors xed contribution of the unmeasured charac-
that are xed in a given year across all areas, teristics of a speci c area. A second option is
or xed in a given area for all years, and can to treat ignorance on the speci c xed contri-
in uence the real value of non-central retail bution of an area to its retail sales in the
activity. Since the factors xed in a given same manner as the general ignorance repre-
year are likely to be related to the position of sented by the regression’s error term. Using
the national economy in the business cycle, a this ‘random-effect’ method, the regression’s
dummy variable for observations from 1987 error is composed of the traditional compo-
and another dummy variable for observations nent plus a second component that varies by
from 1997 are included in all regressions. each of the 54 speci c metropolitan locations
1320
Table 5. Descriptive statistics and regression results using real value metropolitan retail sales ($ millions) in non-central places as dependent variable
(dependent variable’s mean (standard deviation): $3844.12 ($7017.49))
Explanatory variables Mean (standard deviation) Ordinary least squares Fixed-effect ordinary least squaresa
(5.71) (3.737)
Dummy if closed-region urban containment 0.099
in place (0.300) 662.87 1 031.15***
(625.23) (374.84)
Years that closed-region urban containment 0.894 2 0.021
in place (3.152) 2 42.85 2 89.53**
(59.47) (35.41)
Dummy if isolated urban containment in 0.130
place (0.338) 19.31 122.22
(485.40) (145.03)
Years that isolated urban containment in 1.354
place (4.297) 2 0.538 2 9.50
(38.04) (9.38)
Dummy if open-region urban 0.019
containment in place (0.136) 2 92.33 2 306.18
(1 544.92) (239.90)
Years that open-region urban containment in 0.174 0.003
place (1.421) 39.11 72.79***
(145.43) (23.20)
Real value agriculture products in metro area 860.85 2 0.135
per acre in agriculture ($) (891.76) 0.068 2 0.601***
(0.114) (0.203)
Percentage population in non-central places 29.16
than age 18 (6.43) 8.23 0.727
(17.39) (16.82)
Percentage population in non-central places 10.80 0.288
greater than age 64 (3.10) 51.16 102.73**
(40.01) (40.79)
Percentage state-wide discretionary municipal 29.14
revenue from property taxes (10.45) 2 15.99 17.92
(25.59) (20.57)
Percentage state-wide discretionary municipal 23.47 0.242
revenue from general sales taxes (11.36) 2 4.48 39.60**
(22.70) (17.49)
Percentage state-wide discretionary municipal 10.03 0.282
revenue from other taxes (4.02) 2 10.91 107.94**
(39.66) (45.28)
Observations 161 161 161
R2 statistic 0.976 0.995
Adjusted R2 statistic 0.973 0.992
F-test statistic 7.022***
FISCALISATION OF LAND USE
in the sample. A nal option is to do nothing exerts a signi cant in uence on non-central-
to account for speci c area effects. The re- place retail sales. In the xed-effect model, a
gression results recorded in Table 5 include 1 per cent increase in suburban population
two of these possibilities and the results of from its mean results in about a 0.83 per cent
statistical tests that indicate which is pre- increase in real retail sales from its mean for
ferred.17 the average metropolitan area in the sample.
Brueckner and Fansler (1983), using ordi-
nary least squares for a single cross-section
6. Regression Findings
of US metropolitan areas recorded a slightly
The second column of numbers in Table 5 is larger 1.1 per cent increase in urbanised land
the ordinary least squares (OLS) result and area for a 1 per cent increase in urbanised
includes no attempt to calculate a constant population. Notice that this is the same as the
intercept term for each metropolitan area. population elasticity of non-central retail
These results, and the xed-effect regression sales recorded in the OLS regression in Table
results next to them that include a separate 5.
constant term for each of the 54 metropolitan In the xed-effect regression, household
areas, use White’s method of adjusting the income exerted no statistically signi cant
regression coef cient’s standard errors for in uence on real retail sales. However, in the
possible heteroscedastic bias from an un- OLS regression, an increase in suburban
known source.18 The regression entries in household income did result in a statistically
Table 5 rst contain, in bold, the mean elas- signi cant increase in suburban retail sales.20
ticity values for the statistically signi cant Another signi cant in uence in the xed-
regression coef cients. Below these are the effect regression, that is non- scal in nature,
actual regression coef cients and, in parenth- is that a 1 per cent increase in the price per
esis, the coef cient’s standard errors.19 The acre of agricultural land in the metropolitan
statistical signi cance of the F statistic, area resulted in about a 0.14 per cent de-
recorded at the bottom of the table, indicates crease in real retail sales. This is the expected
that the group of area dummies included in effect of higher prices for suburban land
the xed-effect model exerts a signi cant slowing down suburban retail expansion.21
in uence on retail sales. The statistical Brueckner and Fansler (1983) record a
signi cance of the Lagrange multiplier stat- higher elasticity of – 0.20 for a similar ex-
istic, also at the bottom of Table 5, indicates planatory variable’s effect on the size of the
that the use of the xed- or-random-effect urbanised land area, but recall this came
model is preferred to simple ordinary least from a regression analysis using a single
squares. A Hausman statistic, which indi- cross-section and no controls for xed ef-
cates whether the random-effect model is fects. In addition, a 1 per cent increase in the
preferred to the xed-effect model, could not percentage of the non-central population over
be calculated due to correlation between the age 64 yields about a 0.29 per cent increase
calculated random-effect errors and the ran- in non-central retail sales.
dom-effect regressors. Such correlation is Particularly notable are the six regression
likely to bias the regression coef cients in coef cients calculated for the three different
the random-effect model. Based upon these forms of urban containment policies. The
test statistics, the preferred results are from presence of a closed-region urban contain-
the xed-effect regression model. The ordi- ment policy (a metropolitan-wide urban
nary least squares regression results are pro- growth boundary which preserves land out-
vided to show the difference in magnitude side it and attempts to shift demand for re-
and statistical signi cance of regression gional development to within it) is correlated
coef cients after area-speci c effects are ap- with about $1 billion more retail activity in
propriately controlled for. the metropolitan area’s non-central places.
As expected, non-central-place population But this effect should not be observed in
FISCALISATION OF LAND USE 1323
isolation, for the xed-effect regression also containment is unlikely to be causal and just
reveals that, for every year that closed-region picking up the increased retail decentralis-
containment is in place, the real value of ation that was anticipated in the earlier adop-
retail activity in non-central places (holding tion of this ineffective policy.
other causal factors constant) fell by about Regression coef cients of equal interest
$90 million. Although this yearly decrease is are the ones relating to how state-wide mea-
not large relative to the average real value of sures of reliance on various forms of own-
non-central retail activity of $3.8 billion, af- source municipal revenue affect non-central
ter 20 years of closed-region urban contain- retail sales. In the xed-effect regression, the
ment, the resulting $1.8 billion reduction in percentage of state-wide own-source munici-
non-central retail sales is a sizeable amount. pal revenue from property taxes exerted no
The xed-effect regression indicates that a statistically signi cant in uence on the value
region that institutes a policy of closed- of real non-central retail sales. Although the
region containment at rst exhibits more simulation nding of Brueckner and Kim
non-central retail activity; however, after 12 (2000), and the additional motivation of sub-
years (calculated by dividing 1031 by 90) it urbs seeking scal surplus, indicate an ex-
begins to have less. These ndings are as pected positive in uence, there is also the
expected if regions with greater sprawl are possibility that property tax reliance discour-
more likely to adopt closed-region contain- ages capital consumption, promotes greater
ment and over time this policy reduces de- density and reduces retail decentralisation.
centralisation. The increased effect over time These offsetting occurrences could be the
is likely to be due to outer development reason for the insigni cant in uence that this
patterns being increasingly constrained the variable exerts on non-central retail sales.
longer a given closed-region policy has been Alternatively, the percentage of state-wide
in place. Isolated urban containment (open discretionary municipal revenue from general
space preservation in place at only sub- sales taxation exerted a signi cant positive
metropolitan jurisdictional boundaries and no in uence on non-central retail activity. For
effort to direct development back to central every 1 per cent increase in sales tax re-
places) exhibited no statistically signi cant liance, real retail sales in non-central metro-
in uence on the amount of real retail activity politan places in the West rose by 0.24 per
in non-central places. cent. State-wide reliance on other taxes,
The positive regression coef cient on the which includes various types of business
variable representing the number of years taxes and franchise/licence fees, also yielded
that open-region urban containment has been a signi cant in uence. For every 1 per cent
in place in the metropolitan area deserves increase in reliance on these other forms of
explanation. Recall that this form of urban local taxation, real retail sales in non-central
containment policy is less restrictive than the places rose by 0.28 per cent.22
closed-region form since it does not attempt
to preserve open space outside drawn
7. Implications
boundaries. The adoption of such a policy in
the San Luis Obispo– Atascadero– Paso Rob- The regression ndings in Table 5 con rm
les and Santa Fe metropolitan areas was the a priori expectations of economic theory.
likely to have been a response to a belief that Population, available land prices and demo-
sprawl is coming and a desire to do some- graphics in uence the real dollar amount of
thing about it. But as the regression indicates, retail sales observed in non-central places in
without concentrated efforts to preserve open the western US. The regression analysis also
space at the fringe, open-region urban con- generated evidence in support of the
tainment policies do not reduce the decentra- scalisation of land use for retail activity and
lisation of retail activity. The positive that over time the most restrictive form of
coef cient on years of open-region urban an urban growth boundary reduces the de-
1324 ROBERT W. WASSMER
even be greater. As a nal point, as done in tail sales in non-central places as the depen-
Brueckner and Fansler (1983), it would be dent variable lends itself to more direct
modelling and the resulting regression analy-
interesting to use the Census collected square sis offers quite different results.
miles in the urbanised area as the dependent 8. A mathematical description of the formal
variable in a regression study and check if urban model that yields these four causal
state-wide local scal structure and the pres- factors—originally developed by Muth
ence of urban growth boundaries exert simi- (1969) and Mills (1972)—is contained in
Brueckner and Fansler (1983).
lar in uences on the geographical size of a 9. If metropolitan transport options were in-
metropolitan area. cluded as explanatory variables in the re-
gression analysis, they would need to be
considered simultaneously determined and
Notes appropriately modelled. Brueckner and
1. Lang (2000) also writes about the declining Fansler (1983) found their variable proxies
percentage of metropolitan of ce space in for commuting cost (percentage of com-
US central cities and refers to it as ‘of ce muters using public transit and percentage of
sprawl’. In 1979, 74 per cent of US of ce households owning one or more autos) never
space was in central cities, by 1999 the cen- to be statistically signi cant factors in ex-
tral-city share of of ce space had dropped to plaining the size of an urbanised area.
58 per cent. 10. In 1997, these 4 sources of local revenue
2. This is a restatement of the most stringent accounted, on average, for nearly 50 per cent
hypothesis that Lewis and Barbour (1999) of the total local revenue collected in the
believe must hold in order to prove empiri- western states in the sample. State-wide
cally that the scalisation of land use is average reliance on local revenue reliance,
occurring. rather than metropolitan-wide averages or
3. The largest central cities in each of these local reliance, is used to ensure the exoge-
excluded states only had 1992 populations of nous nature of these explanatory variables to
136 000, 84 000, and 52 000 respectively. each metropolitan area. Since pertinent land-
4. A PMSA consists of integrated counties that use decisions are made in the unincorporated
are divisible into smaller integrated units that portions of US counties, state-wide munici-
consist of one or more counties. A MSA pal revenue reliance is intended also to proxy
consists of counties that are not divisible into for the average reliance that counties in a
smaller integrated units. state have upon these forms of local revenue.
5. This approach should be considered con- 11. Fischel’s (1985) book on The Economics of
servative in regard to de ning excessive de- Zoning Laws, especially ch. 14, offers an
centralisation because many would consider excellent introduction to zoning in the US
the location of retail activity in a place not and the use of scal zoning described here.
considered a central place in 1977 and 1987, Ladd (1998) provides a recent summary of
but classi ed as such in 1990, as sprawl. land-use regulation as a local scal tool
6. Information on the dollar amount of retail widely used in the US.
activity in metropolitan areas comes from the 12. See Bartik (1991) and Anderson and Wass-
1977, 1987 and 1997 US Census of Retail mer (2000) for book-length descriptions of
Trade. the use and in uence of local economic de-
7. An alternate dependent variable would be the velopment incentives in the US. Lewis and
percentage of retail sales in a metropolitan Barbour (1999, pp. 73– 74) describe the
area occurring in its non-central places (i.e. speci c forms of local incentives that are
the values in the rst three data columns of available to local governments in California.
Table 1). A model of what determines this 13. Business taxes and franchise/licence fees are
percentage contains the same explanatory included in the explanatory variable category
variables as included in the model below, but of Percentage state-wide discretionary
some of the explanatory variables (popu- municipal revenue from other taxes. In most
lation, household income and demographics) states, revenue from businesses makes up
would need to be in percentage form (non- more than half of the amount accounted for
central value relative to total value in the in this category, with the other half coming
metropolitan area). Such a regression from various sources like severance taxes,
speci cation was tried and the results offered death taxes and gift taxes. It is impossible to
low overall explanatory power (R2 ) and little account separately for business-related fees
statistical signi cance of speci c explanatory because distinct business values are not
variables. As described next, using total re- given.
1326 ROBERT W. WASSMER
14. For the a priori purpose of predicting the metropolitan area is held constant. In the
expected in uence of local property taxation regression methodology used here, there is
on non-central retail activity, it would be no measure of urban land price and thus it is
informative to know the amount of scal not directly held constant—although there
surplus through property taxation generated are dummy explanatory variables that control
by retail activity, relative to alternative forms for the xed year and metropolitan area
of local activity. Unfortunately, a search of effects and these could conceivably serve the
the literature revealed no previous estimates purpose of controlling for differences in ur-
of this and a full evaluation would require at ban land prices across metropolitan areas.
least another paper-length treatment. 22. To measure the independent in uence of
15. To account for the spillover of retail cus- Percentage state-wide discretionary munici-
tomers between contiguous metropolitan ar- pal revenue from charges on non-central
eas, a dummy variable representing such activity, this category replaced the general
metropolitan areas was included in prelimi- sales tax category in another xed-effect
nary regressions. This dummy was never regression run. The result was that the ex-
statistically signi cant in the OLS and ran- planatory variable representing other taxes
dom-effect models, and could not be in- remained positive and statistically
cluded in the xed-effect regression model signi cant; the property tax variable contin-
due to perfect colinearity. A separate dummy ued to exert a statistically insigni cant
for whether a metropolitan area is a PMSA in uence; while the charge variable also ex-
yielded similar results. Both of these dum- erted no signi cant in uence. Considering
mies are not included in the nal regression that the legal intent of charges is to generate
analysis. little to no scal surplus, the insigni cance
16. Available at: http://webstage1.aspensys.com/ of charges to non-central retail activity is as
SOCDS/SOCDS Home.htm. expected.
17. There is also the speci cation issue of 23. The 206 per cent increase in sales tax re-
whether a log-linear functional form is more liance comes from taking the 1997 reliance
appropriate than the linear form used here. A of 14.6 per cent, subtracting it from 34.3 per
log-linear form uses the log of the dependent cent, and dividing by 14.6 per cent. The 50
variable and allows for non-linear relation- per cent increase in non-central retail activity
ships between explanatory variables and the then is calculated by taking the 206 per cent
dependent variable. This speci cation was increase in sales tax reliance and multiplying
tried and the result was less statistical it by the sales tax elasticity of non-central
signi cance for all regression coef cients retail sales (0.242) recorded in Table 5.
and a few unexpected signs. Thus the nal 24. For a poll supporting this, see the Advisory
decision to use the linear form recorded in Council on Intergovernmental Relations
Table 5. (1987).
18. See Kennedy (1992, ch. 8) for a description 25. See Johnson (2000). California State Senator
of what heteroscedasticity is and the prob- Dede Alpert, in support of an earlier 2000
lems it presents for regression analysis. bill that failed, but would have distributed
White’s method of correction is described on new local sales tax revenue in all California
p. 130. counties on a per-capita basis instead of the
19. The regressions use only 161 of the possible current situs basis, believed that:
162 observation (54 areas over 3 areas) be-
cause the Yuba City CA, MSA was not in Retail sprawl leads to urban sprawl, which
existence in 1977 and hence explanatory data leads to traf c, pollution, and generally a
could not be gathered for it. pretty poor quality of life for communities.
20. The non-signi cance of the income These communities could otherwise have
coef cient in the xed-effect regression may been balanced with jobs and housing lo-
be due to the fact that 1997 income values cated near each other, full services pro-
are extrapolated. To test this hypothesis, the vided by each level of local government
xed-effect regression was rerun using only and less ghting and more cooperation
the 1977 and 1987 samples and again the between local leaders. It is not rocket sci-
regression coef cient on median household ence. It is the incentives.
income was statistically insigni cant; thus
the basis for the decision to use the full References
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