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Nonlinear Income Taxation And Matching Grants In A Federation With Decentralized In-Kind Transfers

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  • Sören Blomquist
  • Luca Micheletto

Abstract

We extend to a fiscal federalism setting the literature on redistributive in-kind transfers in the presence of nonlinear income taxation. Local governments have a cost advantage, motivating decentralization of the in-kind transfer. The cost structure varies across regions, and the central government cannot observe which region is which. We show that decentralized in-kind transfers can, in this setting, be an even more important instrument for relaxing self-selection constraints, thus, helping redistribution, than in single-government models. We characterize the optimal marginal tax rates and matching grants. The grants have a very different structure than the one derived in earlier studies. Copyright � (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 50 (2009)
Issue (Month): 2 (05)
Pages: 543-575

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Handle: RePEc:ier:iecrev:v:50:y:2009:i:2:p:543-575

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Cited by:
  1. Casarico, Alessandra & Micheletto, Luca & Sommacal, Alessandro, 2011. "Intergenerational transmission of skills during childhood and optimal public policy," Working Paper Series, Center for Fiscal Studies 2011:3, Uppsala University, Department of Economics.
  2. Blomquist, Sören & Christiansen, Vidar & Micheletto, Luca, 2011. "Public provision of private goods, self-selection and income tax avoidance," Working Paper Series, Center for Fiscal Studies 2011:6, Uppsala University, Department of Economics.

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