Centralization Trade-off with Non-Uniform Taxation
When local public goods are provided by a centralized authority, spillovers are internalized, but heterogeneity in preferences may be suppressed. Besley and Coate (2003) recently examined this classic trade-off for a uniform tax regime with strategic delegation. Here, we extend their approach by allowing for a non-uniform tax regime. We find that centralization with nonuniform taxation unambiguously increases welfare in comparison to uniform-tax centralization. With non-cooperative legislators coming from symmetric districts, our centralization dominates decentralization for any degree of spillovers. In other cases, non-uniform taxation at least improves the odds of centralization, if measured by a utilitarian yardstick.
Volume (Year): 1 (2007)
Issue (Month): 3 (November)
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- Redoano, Michela & Scharf, Kimberly A., 2004.
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0111, Exeter University, Department of Economics.
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2495, C.E.P.R. Discussion Papers.
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- Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
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