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A Theory of Distributional Conflict, Voluntarism and Segregation

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  • Horstmann, Ignatius J
  • Scharf, Kimberley Ann

Abstract

Along with the rise in income inequality in the US, there is evidence of a simultaneous move toward fiscal devolution and increased government reliance on private provision of public goods. This Paper argues that these phenomena are related. We describe a model of jurisdiction and policy formation in which the structure of government provision is endogenous and public good provision levels are determined by a political process that can exploit private motives for voluntary giving. The model predicts that an increase in income inequality leads to decentralization, with local jurisdictions becoming more income-homogeneous than the population as a whole. This reduction in local income heterogeneity, combined with a reduced tax base, results in increased reliance by government on private provision.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3625.

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Date of creation: Nov 2002
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Handle: RePEc:cpr:ceprdp:3625

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Keywords: fiscal federalism; jurisdiction formation; private provision of public goods;

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Cited by:
  1. Horstmann, Ignatius J & Scharf, Kimberley Ann & Slivinski, Al, 2004. "Can Private Giving Promote Economic Segregation?," CEPR Discussion Papers 4354, C.E.P.R. Discussion Papers.

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