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Local Public Good Provision, Municipal Consolidation, and National Transfers

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  • Robert Dur
  • Klaas Staal

Abstract

We analyze a simple model of local public good provision in a region comprising two districts, a city and a village. When districts remain autonomous and local public goods have positive spillover effects on the neighboring district, there is underprovision of public goods in both the city and the village. When districts consolidate, underprovision persists in the village (and may become even more severe), whereas overprovision of public goods arises in the city as urbanites use their political power to exploit the villagers. From a social welfare point of view, inhabitants of the village have insufficient incentives to vote for consolidation. We examine how national transfers to local governments can resolve these problems.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-07/cesifo1_wp2061.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2061.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2061

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Keywords: local public goods; municipal consolidation; voting; intergovernmental transfers; tax discrimination;

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References

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  1. Le Breton, Michel & Weber, Shlomo, 2003. "The Art of Making Everybody Happy : How to Prevent a Secession," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 164, Institut d'Économie Industrielle (IDEI), Toulouse.
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Citations

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Cited by:
  1. Fabio Fiorillo & Agnese Sacchi, 2012. "On Local Environmental Protection," EuroEconomica, Danubius University of Galati, Danubius University of Galati, issue 5(31), pages 28-42, December.
  2. Tuukka Saarimaa & Janne Tukiainen, 2012. "Politics in Coalition Formation of Local Governments," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0102, Spatial Economics Research Centre, LSE.
  3. Farley, Josh & Aquino, André & Daniels, Amy & Moulaert, Azur & Lee, Dan & Krause, Abby, 2010. "Global mechanisms for sustaining and enhancing PES schemes," Ecological Economics, Elsevier, Elsevier, vol. 69(11), pages 2075-2084, September.
  4. Fabio Fiorillo & Agnese Sacchi, 2011. "Free-riding or Internalizing? An Opportunistic View on Decentralization versus Centralization," CESifo Working Paper Series 3328, CESifo Group Munich.
  5. Janos Feidler & Klaas Staal, 2012. "Centralized and decentralized provision of public goods," Economics of Governance, Springer, Springer, vol. 13(1), pages 73-93, March.
  6. Kumar, Surender & Managi, Shunsuke, 2009. "Compensation for environmental services and intergovernmental fiscal transfers: The case of India," Ecological Economics, Elsevier, Elsevier, vol. 68(12), pages 3052-3059, October.
  7. Miyazaki, Takeshi, 2013. "Municipal Consolidation and Local Government Behavior: Evidence from Japanese Voting Data on Merger Referenda," Discussion Paper Series, Institute of Economic Research, Hitotsubashi University 588, Institute of Economic Research, Hitotsubashi University.

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