Advanced Search
MyIDEAS: Login

Public Budget Composition, Fiscal(De)Centralization, and Welfare

Contents:

Author Info

  • Calin Arcalean

    ()
    (Indiana University)

  • Gerhard Glomm

    ()
    (Indiana University)

  • Ioana Schiopu

    ()
    (Indiana University)

  • Jens Suedekum

    ()
    (University of Konstanz)

Abstract

We present a dynamic two-region model with overlapping generations. There are two types of public expenditure, education and infrastructure funding, and governments decide optimally on budget size (tax rate) and its allocation across the two outlays. Productivity of government infrastructure spending can differ across regions. This assumption follows well established empirical evidence, and highlights regional heterogeneity in a previously unexplored dimension. We study the implications of three different fiscal regimes for capital accumulation and aggregate national welfare. Full centralization of revenue and expenditure decisions is the optimal fiscal arrangement for the country when infrastructure spending productivity is similar across regions. When regional differences exist but are not too large, the partial centralization regime is optimal where the federal government sets a common tax rate, but allows the regional governments to decide on the budget composition. Only when the differences are sufficiently large does full decentralization become the optimal regime. National steady state output is instead highest when the economy is decentralized. This result is consistent with the “Oates conjecture” that fiscal decentralization increases capital accumulation. However, in terms of welfare this result can be reversed.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.iub.edu/~caepr/RePEc/PDF/2007/CAEPR2007-003.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-003.

as in new window
Length: 32 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:inu:caeprp:2007003

Contact details of provider:
Postal: Wylie Hall Room 105, Bloomington, IN 47405-6620
Phone: 812-855-1021
Fax: 812-855-3736
Email:
Web page: http://www.iub.edu/~caepr
More information through EDIRC

Related research

Keywords: fiscal federalism; capital accumulation; infrastructure; public education;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Calin Arcalean & Gerhard Glomm & Ioana Schiopu, 2007. "Growth Effects of Spatial Redistribution Policies," Caepr Working Papers 2007-002, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  2. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  3. Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:inu:caeprp:2007003. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Center for Applied Economics and Policy Research).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.