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Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

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  • Hikaru Ogawa
  • David E. Wildasin

Abstract

We analyze models with interjurisdictional spillovers among heterogeneous jurisdictions, such as CO2 emissions that affect the global environment. Each jurisdiction's emissions depend upon the local stock of capital, which is interjurisdictionally mobile and subject to local taxation. In important cases, decentralized policy-making leads to efficient resource allocation, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can result in globally efficient allocation. (JEL D62, H23, H73, H87, Q58)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.4.1206
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 4 (September)
Pages: 1206-17

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1206-17

Note: DOI: 10.1257/aer.99.4.1206
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References

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Citations

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Cited by:
  1. Rosella Levaggi, 2008. "Decentralisation vs fiscal federalism in the presence of impure public goods," Working Papers 0812, University of Brescia, Department of Economics.
  2. Caragliu, Andrea & Del Bo, Chiara, 2011. "Determinants of spatial knowledge spillovers in Italian provinces," Socio-Economic Planning Sciences, Elsevier, vol. 45(1), pages 28-37, March.
  3. Harrison Fell & Daniel T. Kaffine, 2013. "Think locally, act locally: Can decentralized planning really achieve first-best in the presence of environmental spillovers?," Working Papers 2013-07, Colorado School of Mines, Division of Economics and Business.
  4. Thomas Eichner & Marco Runkel, 2010. "Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply," CESifo Working Paper Series 3214, CESifo Group Munich.
  5. James Alm & H. Spencer Banzhaf, 2012. "Designing Economic Instruments For The Environment In A Decentralized Fiscal System," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 177-202, 04.
  6. Antoine d'Autume & Katheline Schubert & Cees Withagen, 2011. "Should the carbon price be the same in all countries?," Documents de travail du Centre d'Economie de la Sorbonne 11076, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  7. Harrie A. A Verbon & Cees A. Withagen, 2010. "Do Permit Allocations Matter?," CESifo Working Paper Series 3236, CESifo Group Munich.
  8. Hikaru Ogawa & David E. Wildasin, 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," American Economic Review, American Economic Association, vol. 99(4), pages 1206-17, September.
  9. Cees Withagen & Alex Halsema, 2013. "Tax competition leading to strict environmental policy," International Tax and Public Finance, Springer, vol. 20(3), pages 434-449, June.
  10. Thomas Eichner & Marco Runkel, 2010. "Subsidizing Renewable Energy under Capital Mobility," CESifo Working Paper Series 3185, CESifo Group Munich.
  11. Levaggi, Rosella, 2010. "From local to global public goods: How should externalities be represented?," Economic Modelling, Elsevier, vol. 27(5), pages 1040-1042, September.
  12. Banzhaf, H. Spencer & Chupp, B. Andrew, 2012. "Fiscal federalism and interjurisdictional externalities: New results and an application to US Air pollution," Journal of Public Economics, Elsevier, vol. 96(5), pages 449-464.

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