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A simple dynamic decentralized leadership model with private savings and local borrowing regulation

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  • Akai, Nobuo
  • Sato, Motohiro

Abstract

This paper considers a simple dynamic decentralized leadership model with local borrowing and regional productivity-enhancing investment. In this model, the central government is benevolent but cannot commit to ex post intergovernmental transfer policies, while local governments act strategically after accounting for the ex post motives of the central government. We then investigate inefficiency in the subgame perfect equilibrium. We analyze the effect of central control on local borrowing and show that central control is of no benefit because ex ante local taxation works to offset it. We find the model yields different policy implications that central control is effective when extended to the case of residential mobility.

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Bibliographic Info

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

Volume (Year): 70 (2011)
Issue (Month): 1 (July)
Pages: 15-24

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Handle: RePEc:eee:juecon:v:70:y:2011:i:1:p:15-24

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

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Keywords: Commitment Intergovernmental transfers Local borrowing Private savings Residential mobility;

References

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  7. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, Elsevier, vol. 77(2), pages 265-284, August.
  8. Ihori, Toshihiro & Itaya, Jun-ichi, 2001. "A dynamic model of fiscal reconstruction," European Journal of Political Economy, Elsevier, Elsevier, vol. 17(4), pages 779-797, November.
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  11. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 46-57, March.
  12. Myers & G.M., 1989. "Optimality, Free Mobility And The Regional Authority In Federation," Working Papers, John Deutsch Institute for the Study of Economic Policy 10, John Deutsch Institute for the Study of Economic Policy.
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