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The optimal decentralization of public input provision for private producation

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  • Clément Carbonnier

    ()
    (THEMA, Universite de Cergy-Pontoise)

Abstract

This article presents a model of optimal decentralization of economic governance. It focuses on the provision of public input for private production. It considers that the decision power is given to a local government if it has the full right to decide new investments and new taxes to finance it. Three economic forces act on this optimal decentralization of the decision. First is the centripetal force which consists in the increasing accuracy and relevance of public investments when decided more locally. The second and third are the centrifugal forces of the administrative costs on the one hand and of the fiscal competition among decentralized jurisdictions on the other. Formal proofs of the existence and uniqueness of solutions are given under special hypotheses and in general. Numerical analysis is also done to understand the impact on the optimal decentralization level of the different model parameters.

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File URL: http://www.u-cergy.fr/thema/repec/2011-09.pdf
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Bibliographic Info

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2011-09.

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Date of creation: 2011
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Handle: RePEc:ema:worpap:2011-09

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Keywords: Decentralization; Corporate taxes; Tax competition; Public input; Firm location;

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