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Tobin Meets Oates: Solidarity and the Optimal Fiscal Federal Structure

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  • Xavier Calsamiglia
  • Teresa Garcia-Milà
  • Therese J. McGuire

Abstract

We explore the implications for the optimal degree of fiscal decentralization when peoples preferences for goods and services, which classic treatments of fiscal federalism (Oates, 1972) place in the purview of local governments, exhibit specific egalitarianism (Tobin, 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.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 486.

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Date of creation: Jul 2010
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Handle: RePEc:bge:wpaper:486

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Keywords: Fiscal decentralization; specific egalitarianism; solidarity; externalities;

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  1. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers.
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