According to the Decentralization Theorem, local governments are more efficient than centralized ones in providing local public services, since resident citizens’ needs differ from those of citizens from other places. Local governments may better meet residents’ needs than a central government can do. A crucial issue may arise from the presence of non-voting (that are “non-resident”) citizens amongst the local population, thus affecting the implementation of the equivalence principle (Olson, 1969). The manifold effects of the presence of NRP (non- resident population) may variously affect public budget management as well as private economy both of a municipality and of its resident population (RP). Since NRP has a serious impact on efficiency/efficacy of public expenditure for services, it would be also worth evaluating its capacity of funding local public expenditure in terms of both current and future taxation. In funding local bodies the central government may opt for charging residents with a heavier burden of taxation than NRP (i.e., by partly replacing transfers with a share in Irpef). On the other hand, NRP’s features together with a different composition of population across municipalities may induce governments to supply balancing transfers aimed to partly compensate differences between actual taxable incomes within the local environment. Incoming NRP flows may thus affect municipalities’ politics and some dynamics are likely to have critical impacts on equilibrium budgets, even if choices are often shaped by higher economic resources eventually available to municipalities themselves.
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Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue H7 - Public Economics - - State and Local Government; Intergovernmental Relations J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
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