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Interregional Disparities in Productivity and the Choice of Fiscal Regime

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  • KIMIKO TERAI

Abstract

Two districts with divergent productivity levels engage in policy-making on the provision of local public goods that enhance future income and hence create a dynamic linkage across periods. The policy choices of district representatives are derived under alternative fiscal systems, and the relative merits of the systems are evaluated. It is predicted that a decentralized system is more likely to be selected in a more equal society. On the other hand, when a great deal of benefit spills over from a local public good, or when policy makers are expected to care solely about the immediate effects of their decisions on their districts, a centralized system is more likely to be selected. Copyright © 2009 Wiley Periodicals, Inc..

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  • Kimiko Terai, 2009. "Interregional Disparities in Productivity and the Choice of Fiscal Regime," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(3), pages 383-409, June.
  • Handle: RePEc:bla:jpbect:v:11:y:2009:i:3:p:383-409
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