The progressivity of equalization payments in federations
AbstractWe investigate the conditions under which an inequality averse and additively separable welfarist constitution maker would always choose to set up a progressive equalization payments scheme in a federation with local public goods. A progressive equalization payments scheme is defined as a list of per capita net (possibly negative) subsidies - one such net subsidy for every jurisdiction - that are decreasing with respect to jurisdictions per capita wealth. We examine these questions in a setting in which the case for progressivity is a priori the strongest, namely, all citizens have the same utility function for the private and the public goods, inhabitants of a given jurisdiction are all identical, and they are not able to move across jurisdictions. We show that the constitution maker favors a progressive equalization payments scheme for all distributions of wealth and all population sizes if and only if its objective function is additively separable between each jurisdictionâs per capita wealth and number of inhabitants. When interpreted as a mean of order r social welfare function, this condition is shown to be equivalent to additive separability of the individualâs indirect utility function with respect to wealth and the price of the public good. Some implications of this restriction to the case where the individualâs direct utility function is additively separable are also derived.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 90 (2006)
Issue (Month): 8-9 (September)
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Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Nicolas Gravel & Michel Poitevin, 2004. "The Progressivity of Equalization Payments in Federations," IDEP Working Papers 0408, Institut d'economie publique (IDEP), Marseille, France, revised Jul 2004.
- GRAVEL, Nicolas & POITEVIN, Michel, 2004. "The Progressivity of Equalization Payments in Federations," Cahiers de recherche 2004-12, Universite de Montreal, Departement de sciences economiques.
- GRAVEL, Nicolas & POITEVIN, Michel, 2004. "The Progressivity of Equalization Payments in Federations," Cahiers de recherche 14-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H10 - Public Economics - - Structure and Scope of Government - - - General
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- H - Public Economics
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