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Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

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  • Hikaru Ogawa
  • David E. Wildasin

Abstract

In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction’s emissions depend upon the local stock of private capital. Capital is interjurisdictionally-mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2142.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2142

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Cited by:
  1. Hikaru Ogawa & David E. Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," CESifo Working Paper Series 2142, CESifo Group Munich.
  2. Rosella Levaggi, 2009. "From local to global public goods: how should externalities be represented?," Working Papers 0903, University of Brescia, Department of Economics.
  3. James Alm & H. Spencer Banzhaf, 2011. "Designing Economic Instruments for the Environment in a Decentralized Fiscal System," Working Papers 1104, Tulane University, Department of Economics.
  4. Thomas Eichner & Marco Runkel, 2012. "Interjurisdictional Spillovers, Decentralized Policymaking, and the Elasticity of Capital Supply," American Economic Review, American Economic Association, vol. 102(5), pages 2349-57, August.
  5. Harrie A. A Verbon & Cees A. Withagen, 2010. "Do Permit Allocations Matter?," CESifo Working Paper Series 3236, CESifo Group Munich.
  6. Caragliu, Andrea & Del Bo, Chiara, 2011. "Determinants of spatial knowledge spillovers in Italian provinces," Socio-Economic Planning Sciences, Elsevier, vol. 45(1), pages 28-37, March.
  7. Thomas Eichner & Marco Runkel, 2010. "Subsidizing Renewable Energy under Capital Mobility," CESifo Working Paper Series 3185, CESifo Group Munich.
  8. Cees Withagen & Alex Halsema, 2013. "Tax competition leading to strict environmental policy," International Tax and Public Finance, Springer, vol. 20(3), pages 434-449, June.
  9. Jan K. Brueckner, 2013. "Decentralized Road Investment and Pricing in a Monocentric, Multi-Jurisdictional City: Efficiency with Spillovers," CESifo Working Paper Series 4473, CESifo Group Munich.
  10. Harrison Fell & Daniel T. Kaffine, 2013. "Think locally, act locally: Can decentralized planning really achieve first-best in the presence of environmental spillovers?," Working Papers 2013-07, Colorado School of Mines, Division of Economics and Business.
  11. Banzhaf, H. Spencer & Chupp, B. Andrew, 2012. "Fiscal federalism and interjurisdictional externalities: New results and an application to US Air pollution," Journal of Public Economics, Elsevier, vol. 96(5), pages 449-464.
  12. Rosella Levaggi, 2008. "Decentralisation vs fiscal federalism in the presence of impure public goods," Working Papers 0812, University of Brescia, Department of Economics.
  13. repec:hal:cesptp:halshs-00654239 is not listed on IDEAS
  14. Antoine d'Autume & Katheline Schubert & Cees Withagen, 2011. "Should the carbon price be the same in all countries?," Documents de travail du Centre d'Economie de la Sorbonne 11076, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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