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Centralization Trade-off with Non-Uniform Taxes

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Abstract

When local public goods are provided by a centralized authority, spillovers may be coordinated, but heterogeneity in preferences may be suppressed. Besley and Coate (2003) have already solved this classic trade-off for a uniform tax regime. Here, we extend their approach by allowing for a non-uniform tax regime. We find that centralization with our tax system necessarily increases welfare in comparison to uniform-tax centralization. Importantly, with non-cooperative legislators coming from homogenous districts, our centralization dominates decentralization for any degree of spillovers. In other cases, it at least improves odds of centralization, if measured by utilitarian yardstick.

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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 81.

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Length: 52 pages
Date of creation: 2005
Date of revision: 2005
Handle: RePEc:fau:wpaper:wp081

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Keywords: Decentralization; Local Public Goods; Distributive Politics; Political Economy;

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References

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  1. Redoano, Michela & Scharf, Kimberley Ann, 2002. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CEPR Discussion Papers 3631, C.E.P.R. Discussion Papers.
  2. Hillman,Arye L., 2009. "Public Finance and Public Policy," Cambridge Books, Cambridge University Press, number 9780521494267, April.
  3. Guillaume Cheikbossian, 2000. "Federalism, distributive politics and representative democracy," Economics of Governance, Springer, vol. 1(2), pages 105-122, 07.
  4. Besley, Timothy J. & Coate, Stephen, 2000. "Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis," CEPR Discussion Papers 2495, C.E.P.R. Discussion Papers.
  5. Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
  6. Massimo Bordignon & Luca Colombo & Umberto Galmarini, 2003. "Fiscal Federalism and Endogenous Lobbies' Formation," CESifo Working Paper Series 1017, CESifo Group Munich.
  7. Frey, Bruno S. & Eichenberger, Reiner, 1996. "FOCJ: Competitive governments for Europe," International Review of Law and Economics, Elsevier, vol. 16(3), pages 315-327, September.
  8. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
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Cited by:
  1. Adam Geršl, 2005. "Political Economy of Public Deficit: Perspectives for Constitutional Reform," Working Papers IES 98, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
  2. Kodera J. & Vosvrda M., 2005. "Production, Capital Stock and Price Dynamics in Simple Model of Closed Economy," Computing in Economics and Finance 2005 287, Society for Computational Economics.
  3. Miloslav Vošvrda & Lukáš Vácha, 2007. "Heterogeneous Agents Model with the Worst Out Algorithm," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 1(1), pages 54-66, March.
  4. Karel Janda, 2005. "The Comparative Statics of the Effects of Credit Guarantees and Subsidies in the Competitive Lending Market," Working Papers IES 82, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
  5. Tomáš Cahlík & Tomáš Honzák & Jana Honzáková & Marcel Jiřina & Natálie Reichlová, 2005. "Convergence of Consumption Structure," Working Papers IES 99, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
  6. Kateřina Tsolov, 2005. "ADR/GDR Potential in Central Europe," Working Papers IES 92, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.

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