Optimal Design of Intergovernmental Grants Under Asymmetric Information
AbstractThis paper develops a theoretical explanation why it may be optimal for higher-level governments to pay categorical block grants or closed-ended matching grants to local governments. We consider a federation with two types of local governments which differ in the cost of providing public goods. The federal government redistributes between jurisdictions, but cannot observe the type of a jurisdiction. In this asymmetric information setting, it is shown that the second-best optimum can be implemented with the help of categorical block grants and closed-ended matching grants, but not with unconditional block grants or open-ended matching grants. Copyright Springer Science + Business Media, Inc. 2006
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Bibliographic InfoArticle provided by Springer in its journal International Tax and Public Finance.
Volume (Year): 13 (2006)
Issue (Month): 1 (January)
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Web page: http://www.springerlink.com/link.asp?id=102915
asymmetric information; categorical block grants; closed-ended matching grants;
Other versions of this item:
- Bernd Huber & Marco Runkel, 2003. "Optimal Design of Intergovernmental Grants under Asymmetric Information," CESifo Working Paper Series 919, CESifo Group Munich.
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