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Matching grants and Ricardian equivalence

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  • FIGUIÈRES , Charles
  • HINDRIKS, Jean

Abstract

This paper questions the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although much less effective. We also find that optimal matching rates are independent of the jurisdictions' choice of policy variable contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

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File URL: http://dx.doi.org/10.1016/S0094-1190(02)00015-3
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1559.

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Handle: RePEc:cor:louvrp:-1559

Note: In : Journal of Urban Economics, 52, 177-191, 2002.
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  1. BOADWAY, Robin & PESTIEAU, Pierre & WILDASIN, David, . "Tax-transfer policies and the voluntary provision of public goods," CORE Discussion Papers RP -856, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
  3. David E. Wildasin, 2000. "Factor mobility and fiscal policy in the EU: policy issues and analytical approaches," Economic Policy, CEPR & CES & MSH, vol. 15(31), pages 337-378, October.
  4. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  5. Hindriks, J., 1998. "Tax versus Transfer Competition," Discussion Papers 9808, Exeter University, Department of Economics.
  6. Charles Brown & Wallace E. Oates, 1987. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
  7. Andreas Pfingsten & Andreas Wagener, 1997. "Centralized vs. Decentralized Redistribution: A Case for Interregional Transfer Mechanisms," International Tax and Public Finance, Springer, vol. 4(4), pages 429-451, November.
  8. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
  9. Bernheim, B Douglas, 1986. "On the Voluntary and Involuntary Provision of Public Goods," American Economic Review, American Economic Association, vol. 76(4), pages 789-93, September.
  10. repec:fth:louvco:0104 is not listed on IDEAS
  11. Jean Hindriks & Gareth D. Myles, 2003. "Strategic Inter-Regional Transfers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 229-248, 04.
  12. Milleron, Jean-Claude, 1972. "Theory of value with public goods: A survey article," Journal of Economic Theory, Elsevier, vol. 5(3), pages 419-477, December.
  13. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  14. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
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Cited by:
  1. Robert Fenge & Volker Meier, 2006. "Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration," CESifo Working Paper Series 1741, CESifo Group Munich.
  2. Hikaru Ogawa, 2006. "Tax competition, spillovers, and subsidies," The Annals of Regional Science, Springer, vol. 40(4), pages 849-858, December.
  3. DREZE, Jacques H. & FIGUIERES, Charles & HINDRIKS, Jean, 2006. "Voluntary matching grants can forestall social dumping," CORE Discussion Papers 2006111, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1745-1763, September.

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