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Matching grants and Ricardian equivalence

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  • Figuieres, Charles
  • Hindriks, Jean

Abstract

This paper investigates the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although somewhat less ective. We also find that optimal matching rates are independent of the number of jurisdictions and their strategic variables contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 52 (2002)
Issue (Month): 1 (July)
Pages: 177-191

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Handle: RePEc:eee:juecon:v:52:y:2002:i:1:p:177-191

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Wildasin, David E., 1999. "Factor mobility and fiscal policy in the EU: policy issues and analytical approaches," ZEW Discussion Papers 99-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  7. HINDRIKS, Jean & MYLES, Gareth D., 2001. "Strategic inter-regional transfers," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. DREZE, Jacques H. & FIGUIERES, Charles & HINDRIKS, Jean, 2006. "Voluntary matching grants can forestall social dumping," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2006111, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Hikaru Ogawa, 2006. "Tax competition, spillovers, and subsidies," The Annals of Regional Science, Springer, Springer, vol. 40(4), pages 849-858, December.
  3. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, Elsevier, vol. 90(8-9), pages 1745-1763, September.
  4. Robert Fenge & Volker Meier, 2006. "Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration," CESifo Working Paper Series 1741, CESifo Group Munich.

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