Economic Research and Perspectives

Economic Research and Perspectives

Financing urban infrastructure in Iran's Metropolises with emphasis on city size: The Case of Isfahan Metropolis

Authors
Nasrin Karimi 1
Nematollah Akbari 2
shekoofeh farahmand 3
1 Ph.D. in Economics, Department of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan
2 Professor of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan
3 Associate Professor of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan
10.22034/24.1.135
Abstract
Introduction

Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy. Investing in public infrastructure represents an essential investment in economic development and standard of living of city residents. Therefore, it is necessary to find new methods of financing in providing services and developing urban infrastructure in metropolises and increasing the welfare of urban society. However, the current approach to revenue mobilization for cities is unlikely to meet the substantial financing needs. Instead, there is a need for a metropolitan public financing strategy that is integrated into national urban development plans and matches national development objectives. In the literature related to city finance, despite the importance of providing suitable urban infrastructures, the discussion about how to fund them, especially in Iran, is rarely done. Therefore, the purpose of this research is to provide a suitable model for providing financial sources for public infrastructure in metropolitan cities with an emphasis on Isfahan metropolis.

Methodology

In this research, a mathematical model for calculating the urbanization tax has been introduced, in which the cost recovery coefficients are related to the optimal size of the cities. Therefore, an equilibrium model is constructed based on cost-benefit analyses and applied to nine Iranian cities with population more than one million people. The panel data regression analysis was performed on a fourteen-year period (2006-2020) using the Transcendental Logarithmic (Translog) function. The obtained results are placed in the basic mathematical model. It should be noted that Excel2016 and Stata12 software were used to estimate the model and analyze the results.

Findings

The results of estimating the regression models related to determining the optimal size of the cities indicate that all the metropolises have exceeded their optimal size. Among the nine metropolitan cities studied, Kermanshah, Karaj and Qom have the largest excess population. Isfahan and Ahvaz have the lowest excess population. The results of calculating the urbanization tax for Isfahan Municipality indicate that the recovery of public infrastructure depreciation costs in the first year can generate more income than the income from property tax for Isfahan metropolis.

Discussion and Conclusion

Providing infrastructure and public services by municipalities for the urban population, especially in metropolises, is a very difficult task and requires access to capital facilities. However, the way to collect these funds and how to provide the infrastructure budget has been less attention. In order to provide public services and urban infrastructure, municipalities should collect the costs related to a certain infrastructure as much as possible from the individuals, companies, localities and groups that benefit from it.

Therefore, in this study, all the urban infrastructures of Isfahan metropolis are divided into three categories based on the benefits they create. The first category is infrastructures whose benefits are assigned to certain individuals and groups. The second category is infrastructures whose benefits are mostly limited to one place or a specific area within the city. The last category also includes those services and infrastructures whose benefits are allocated to the entire city and its residents.

The results show that about 38% of infrastructure costs in Isfahan metropolis are related to the third category. Considering the allocation of these infrastructures to all residents, their cost can be collected through the urbanization tax and according to the optimal size of the cities. The results related to the city size model show that the population of all Iranian metropolises has exceeded its optimal size, so it is suggested to continue receiving infrastructure costs until full recovery.

The results of this research emphasize that although the urban costs have decreased with the increase in population, the urban benefits have decreased more, and in general, diseconomies of scale have been created. However, people will not necessarily involve these diseconomies of scale that they bring to the city in their decisions related to work and migration. Therefore, it is recommended to receive these costs from them.
Keywords
local tax
Urbanization tax
Optimal city size
Iran's metropolises

Subjects

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https://www.worldbank.org/en/topic/urbandevelopment/overview#1
Economic Research and Perspectives
Volume 24, Issue 1
Spring 2024
Pages 135-161