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Redistribution and Provision of Public Goods in an Economic Federation


This paper concerns redistribution and public good provision in an economic federation with two levels of government: a local government in each locality and a (first mover) central government. Each locality is characterized by two ability-types, and the ability-distribution differs across localities. The central government redistributes via a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and provide local public goods. We show how the redistributive role of taxation is combined with a corrective role, and how the central government can implement the second best resource allocation. Copyright 2008 Blackwell Publishing, Inc..

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 10 (2008)
Issue (Month): 1 (02)
Pages: 125-143

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Handle: RePEc:bla:jpbect:v:10:y:2008:i:1:p:125-143
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