Oates' Decentralization Theorem with Household Mobility
AbstractThis paper studies how Oates' trade-off between centralized and decentralized public good provision is affected by changes in households' mobility. We show that an increase in household mobility favors centralization, as it increases competition between jurisdictions in the decentralized regime and accelerates migration to the majority jurisdiction in the centralized regime. Our main result is obtained in a baseline model where jurisdictions first choose taxes, and households move in response to taxb levels. We consider two variants of the model. If jurisdictions choose public goods rather than tax rates, the equilibrium level of public good provision is lower, and mobility again favors centralization. If jurisdictions maximize total utility rather than resident utility, the equilibrium level of public good provision again decreases, and mobility favors centralization when the size of the mobile population is bounded.
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Date of creation: 09 Jan 2012
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Oates' decentralization theorem; Fiscal federalism; Household mobility; Spillovers; Tax competition;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-MIG-2012-01-25 (Economics of Human Migration)
- NEP-PBE-2012-01-25 (Public Economics)
- NEP-UPT-2012-01-25 (Utility Models & Prospect Theory)
- NEP-URE-2012-01-25 (Urban & Real Estate Economics)
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