Public budget composition, fiscal (de)centralization, and welfare
We study the optimal degree of fiscal decentralization in a dynamic federal economy where governments decide on budget size and its allocation between public education and infrastructure spending. We find that full centralization of tax and expenditure policies is optimal when infrastructure productivity is similar across regions. When differences are not too large, partial centralization is optimal. With strong differences, full decentralization becomes optimal. National steady-state output tends to be highest under full decentralization. We provide a justification for the mixed evidence regarding the Oates conjecture by showing that full dominates partial decentralization, despite being inferior to complete decentralization.
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Volume (Year): 43 (2010)
Issue (Month): 3 (August)
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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.:
- Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
- Arcalean, Calin & Glomm, Gerhard & Schiopu, Ioana, 2012.
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- 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.
- 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.
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