How Should Suburbs Help Their Central Cities? Growth and Welfare Enhancing Intra-metropolitan Fiscal Distributions by Andrew F. Haughwout Federal Reserve Bank of New York Robert P. Inman University of Pennsylvania and National Bureau of Economic Research Abstract Cities are the location of the great majority of economic activity in the United States, and produce a disproportionate share of output. It is thus critical for the economy’s long term growth that cities operate efficiently. In this paper, we review the basic determinants of output growth, with a focus on productivity growth in cities. We then explore the effects of a particular distortion in politically fragmented metropolitan areas. After documenting the interdependence of the suburbs and central city of a metropolitan area, we develop a model that embodies many of the empirically verified aspects, including agglomeration economies and public goods. After calibrating the model to outcomes for Philadelphia, we use it to simulate various policy changes. We conclude that, under the model, some kinds of fiscal redistributions can provide benefits in both cities and suburbs. The views presented in this paper are those of the authors, and do not necessarily reflect those of the Federal Reserve Bank of New York, the Federal Reserve System or the National Bureau of Economic Research.