Abstract
We explore the implications for the optimal degree of fiscal decentralization when people's preferences for goods and services-which classic treatments of fiscal federalism (Oates in Fiscal federalism, 1972) place in the purview of local governments-exhibit specific egalitarianism (Tobin in J. Law Econ. 13(2): 263-277, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 450-473 |
| Number of pages | 24 |
| Journal | International Tax and Public Finance |
| Volume | 20 |
| Issue number | 3 |
| DOIs | |
| State | Published - Jun 2013 |
Funding
a. Centralization: In this system, the central government imposes a uniform tax rate to raise funds for provision of a uniform level of the publicly provided good across regions in the country.11 There is a continuum of possible allocations as the tax rate varies from zero to one. Intergovernmental grants from the central govern-ment to the regions are the sole source of funding for expenditures on the publicly provided good. Regional governments are essentially administrative arms of the central government; they make no decisions.
Keywords
- Externality
- Fiscal decentralization
- Free riding
- Solidarity
- Specific egalitarianism
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics