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Centralized vs. Decentralized Redistribution: A Case for Interregional Transfer Mechanisms

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  • Andreas Pfingsten
  • Andreas Wagener

Abstract

According to conventional wisdom, Musgrave's “RedistributionBranch” should be assigned to the central level of governmentin a federation. Otherwise, fiscal externalities created by themobility of the poor would render decentralized redistributioninefficient, if not impossible. The paper objects to this viewand argues that decentralized intraregional redistribution canyield efficient outcomes if it is combined with cleverly designedinterregional transfer mechanisms. Within a general frameworkwe give necessary and sufficient conditions for interregionaltransfer schemes to implement efficient allocations as Nash equilibriaof a decentralized redistribution game. Copyright Kluwer Academic Publishers 1997

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 4 (1997)
Issue (Month): 4 (November)
Pages: 429-451

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Handle: RePEc:kap:itaxpf:v:4:y:1997:i:4:p:429-451

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Decentralization; Redistribution; Fiscal Federalism; Public Funds Sharing;

References

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  1. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
  2. 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.
  3. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers, Indiana - Center for Econometric Model Research 92-003, Indiana - Center for Econometric Model Research.
  4. Cremer, Helmuth & et al, 1996. "Mobility and Redistribution: A Survey," Public Finance = Finances publiques, , , vol. 51(3), pages 325-52.
  5. Leonid Hurwicz, 1994. "Economic design, adjustment processes, mechanisms, and institutions," Review of Economic Design, Springer, Springer, vol. 1(1), pages 1-14, December.
  6. Bureau, Dominique & Champsaur, Paul, 1992. "Fiscal Federalism and European Economic Unification," American Economic Review, American Economic Association, vol. 82(2), pages 88-92, May.
  7. Buhl, Hans Ulrich & Pfingsten, Andreas, 1990. "On the distribution of public funds," European Journal of Political Economy, Elsevier, vol. 6(3), pages 363-376, December.
  8. Sinn, Hans-Werner, 1990. "Tax harmonization and tax competition in Europe," European Economic Review, Elsevier, vol. 34(2-3), pages 489-504, May.
  9. John B. Burbidge & Gordon M. Myers, 1994. "Redistribution within and across the Regions of a Federation," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 620-36, August.
  10. 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.
  11. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  12. Myers & G.M., 1989. "Optimality, Free Mobility And The Regional Authority In Federation," Working Papers 10, John Deutsch Institute for the Study of Economic Policy.
  13. Charles Blackorby & David Donaldson & Maria Auersperg, 1981. "A New Procedure for the Measurement of Inequality within and among Population Subgroups," Canadian Journal of Economics, Canadian Economics Association, vol. 14(4), pages 665-85, November.
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Citations

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Cited by:
  1. Feld, Lars P, 2000. " Tax Competition and Income Redistribution: An Empirical Analysis for Switzerland," Public Choice, Springer, Springer, vol. 105(1-2), pages 125-64, October.
  2. FIGUIÈRES , Charles & HINDRIKS, Jean, . "Matching grants and Ricardian equivalence," CORE Discussion Papers RP -1559, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Wagener, Andreas, 2000. "Variable population size issues in models of decentralized income redistribution," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 609-625, December.
  4. Traub, Stefan, 2003. "Federalism, Freedom of Movement, and Fiscal Equalization," Economics Working Papers 2003,06, Christian-Albrechts-University of Kiel, Department of Economics.
  5. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer, Springer, vol. 4(4), pages 407-427, November.
  6. Seija Parviainen, 1998. "Redistribution and Risk Sharing in EMU," Discussion Papers 159, Government Institute for Economic Research Finland (VATT).
  7. Jacques H. DREZE & Charles FIGUIERES & Jean, HINDRIKS, 2006. "Vountary matching grants can forestall social dumping," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2006063, Université catholique de Louvain, Département des Sciences Economiques.
  8. Rizzo Leonzio, 2006. "Le inefficienze della competizione fiscale: una rassegna dei principali modelli teorici," Economia politica, Società editrice il Mulino, issue 1, pages 89-120.

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