Coming soon: The Tiebout model is wrong in fact, but how can it be wrong in theory?
The Tiebout model is a model of government competition based on exit rather than voice. If you do not like your local government services, then you leave. That forces governments to get better.
I think that the market for government services fails, for a number of reasons. First, exit is difficult. I would gladly trade my Maryland government for the government in Texas or for that of a Swiss canton. But my friends are in Maryland.
Second, there is a lot of bundling. Government is like cable TV. You have to buy the whole package, not just the channels you want. In the case of cable TV, the justification for this is high fixed cost. Once you have the cable hooked up, the marginal cost of a particular channel is low, so it makes some sense to charge a bundled price.
In the case of local government, I think that the bundling is more pernicious. It is not the case that bundling K-12 schools with snow removal serves to spread a high fixed cost that covers both.
In the third part of the widely-unread Unchecked and Unbalanced, I talk about steps that could be taken to make government more competitive by making it easier to exercise the exit option.