Fiscal Decentralization, Redistribution and Growth
AbstractThis paper analyzes the welfare implications of a transfer mechanism in a fiscally decentralized economy where local governments select their tax collection effort to maximize their lifetime utility. We consider a transfer rule that both punishes for the lack of efficiency in tax-collection and compensates for the deviation of pre-tax or transfer income from a target level; in addition, a portion of transfers is considered to be directed towards investment. Simulations of the model’s optimal solution reveal that increasing punishment always results in increased steady state effort, despite the disincentives that increasing income compensation or directed investment may generate. Increasing punishment also improves capital accumulation the lower the rate of directed investments and the lower the tax rate. Further, efficiency in tax collection is achieved the lower the rate of directed investment and the higher the punishment rate.
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Bibliographic InfoPaper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1114.
Length: 18 pages
Date of creation: Jun 2011
Date of revision:
Fiscal decentralization; redistribution;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-06-25 (Accounting & Auditing)
- NEP-ALL-2011-06-25 (All new papers)
- NEP-CMP-2011-06-25 (Computational Economics)
- NEP-MAC-2011-06-25 (Macroeconomics)
- NEP-PBE-2011-06-25 (Public Economics)
- NEP-URE-2011-06-25 (Urban & Real Estate Economics)
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.:
- Jorge Martínez-Vázquez & Robert M. McNab, .
"Fiscal Decentralization, Macrostability And Growth,"
11-03 Classification-JEL , Instituto de Estudios Fiscales.
- Jorge Martínez Vázquez & Robert M. McNab, 2006. "Fiscal decentralization, macrostability and growth," Hacienda Pública Española, IEF, vol. 179(4), pages 25-49, September.
- Jorge Martinez-Vazquez & Robert McNab, 2005. "Fiscal Decentralization,Macrostability, and Growth," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0506, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Luiz R. De Mello Jr., 2004.
"Can Fiscal Decentralization Strengthen Social Capital?,"
Public Finance Review,
, vol. 32(1), pages 4-35, January.
- International Monetary Fund, 2000. "Can Fiscal Decentralization Strengthen Social Capital?," IMF Working Papers 00/129, International Monetary Fund.
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