Fiscal federalism and public inputs provision: vertical externalities matter
AbstractThis paper studies the provision of public inputs in a federal system. A vertical tax externality is also considered in a simple general equilibrium model used to analyze the efficiency of equilibria under different scenarios. The results show that the state provision of public inputs may affect ambiguously federal tax revenues, depending on the vertical tax externality, amongst others issues. Moreover, it is proved that achieving a second best allocation is not straightforward for a federal government that plays as Stackelberg leader. At this point, the state’s reaction function becomes crucial when the design of vertical grants is restricted. JEL Classification: H2, H4, H7
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Date of creation: May 2005
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Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H4 - Public Economics - - Publicly Provided Goods
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-05 (All new papers)
- NEP-PBE-2005-10-07 (Public Economics)
- NEP-URE-2005-10-25 (Urban & Real Estate Economics)
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