We study federal economies in which regional governments have responsibility for delivering public services and redistributive objectives apply. The implications of these for the assignment of revenue-raising instruments and fiscal transfers, both vertical and horizontal, are considered. Models of heterogeneous regions of varying degrees of complexity and generality are constructed. For each case, we determine what fiscal instruments must be given to the regions and what intergovernmental transfers must be made in order that the social optimum is achieved. With heterogenous households and regions, the social optimum can be decentralized by making regions responsible for redistribution and implementing equalization transfers that depend on the number of households of each type. Copyright 2003 Blackwell Publishing Inc..
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Torsten Persson & Guido Tabellini, .
"Political Economics and Public Finance,"
Working Papers
149, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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Other versions:
Persson, Torsten & Tabellini, Guido, 2002.
"Political economics and public finance,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659
Elsevier.
[Downloadable!] (restricted)
David E. Wildasin, 2005.
"Fiscal Competition,"
Working Papers
2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
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