Problems with the Tiebout Model:

Economies of scale: When there are diverse preferences for public goods, the number of local communities required to produce an equilibrium would be extremely large. This might imply many small communities, thereby missing out on possible gains that would arise from the existence of economies of scale in the production of local output.

Benefit spillover:  In the analysis above, the assumption was that those who were the residents in the locality experienced all of the benefits. Benefits provided by one locality may spill over into another jurisdiction. The two localities may 'internalize' this spillover by a process of direct bargaining. Alternatively, there may be a role for a central government. Either way, there will be a modification to the analysis outlined

Non-static preferences: If preferences for local public services change during the life-cycle, there are added strains for the Tiebout mechanism. At certain ages individuals have a priority for educational facilities for children; later they will be more concerned with facilities for old-age pensioners. The implication is that either households move as circumstances change, or local communities consist of individual households whose needs change simultaneously.