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Tobin meets Oates: solidarity and the optimal fiscal federal structure

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  • Xavier Calsamiglia
  • Teresa Garcia-Milà
  • Therese McGuire

Abstract

We explore the implications for the optimal degree of fiscal decentralization when people’s preferences for goods and services—which classic treatments of fiscal federalism (Oates in Fiscal federalism, 1972 ) place in the purview of local governments—exhibit specific egalitarianism (Tobin in J. Law Econ. 13(2): 263–277, 1970 ), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity. Copyright Springer Science+Business Media, LLC 2013

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  • Xavier Calsamiglia & Teresa Garcia-Milà & Therese McGuire, 2013. "Tobin meets Oates: solidarity and the optimal fiscal federal structure," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 450-473, June.
    • Handle: RePEc:kap:itaxpf:v:20:y:2013:i:3:p:450-473
    DOI: 10.1007/s10797-012-9233-0
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    1. Brown, Charles C. & Oates, Wallace E., 1987. "Assistance to the poor in a federal system," Journal of Public Economics, Elsevier, vol. 32(3), pages 307-330, April.
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    6. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
    7. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
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    Cited by:

    1. Teresa Garcia-Milà & Therese J. McGuire & Wallace E. Oates, 2018. "Strength in diversity? Fiscal federalism among the fifty US states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 1071-1091, August.
    2. Teresa Garcia-Milà & Therese J. McGuire, 2018. "When theory meets practice: can we implement the optimal fiscal federal structure?," Economics Working Papers 1663, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2019.

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    More about this item

    Keywords

    Fiscal decentralization; Specific egalitarianism; Solidarity; Free riding; Externality; H42; H77;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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