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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

Related research

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

References

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  1. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
  2. Christoph L├╝lfesmann, 2000. "Central Governance or Subsidiarity: A Property-Rights Approach to Federalism," Bonn Econ Discussion Papers bgse5_2001, University of Bonn, Germany.
  3. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
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  5. Wallace Oates, 2005. "Toward A Second-Generation Theory of Fiscal Federalism," International Tax and Public Finance, Springer, vol. 12(4), pages 349-373, August.
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  7. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, vol. 64(3), pages 551-559, November.
  8. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  9. Johnson, William R, 1988. "Income Redistribution in a Federal System," American Economic Review, American Economic Association, vol. 78(3), pages 570-73, June.
  10. Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer, vol. 9(4), pages 409-421, August.
  11. 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, vol. 77(2), pages 265-284, August.
  12. Ihori, Toshihiro & Itaya, Jun-ichi, 2001. "A dynamic model of fiscal reconstruction," European Journal of Political Economy, Elsevier, vol. 17(4), pages 779-797, November.
  13. Wellisch, Dietmar, 1994. "Interregional spillovers in the presence of perfect and imperfect household mobility," Journal of Public Economics, Elsevier, vol. 55(2), pages 167-184, October.
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