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Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

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Author Info
Hikaru Ogawa () (School of Economics, Nagoya University)
David Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)

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Abstract

In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction’s emissions depend upon the local stock of private capital. Capital is interjurisdictionally-mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.

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Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2007-06.

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Length: 30 pages
Date of creation: Aug 2007
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Handle: RePEc:ifr:wpaper:2007-06

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
D62 - Microeconomics - - Welfare Economics - - - Externalities

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  13. David Wildasin, 2007. "Pre-Emption: Federal Statutory Intervention in State Taxation," Working Papers 2007-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
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  18. Hikaru Ogawa & David E. Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  31. Jens Brøchner & Jesper Jensen & Patrik Svensson & Peter Birch Sørensen, 2006. "The Dilemmas of Tax Coordination in the Enlarged European Union," Working Papers 2006-11, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
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  33. Cremer, Helmuth & Gahvari, Firouz, 2004. "Environmental taxation, tax competition, and harmonization," Journal of Urban Economics, Elsevier, vol. 55(1), pages 21-45, January. [Downloadable!] (restricted)
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  37. James Marton & David E. Wildasin, 2006. "State Government Cash and In-kind Benefits: Intergovernmental Fiscal Transfers and Cross-Program Substitution," Working Papers 2006-01, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hikaru Ogawa & David Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," Working Papers 2007-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
    Other versions:
  2. Rosella Levaggi, 2008. "Decentralisation vs fiscal federalism in the presence of impure public goods," Working Papers 0812, University of Brescia, Department of Economics. [Downloadable!]
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