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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- Besley, Timothy J. & Coate, Stephen, 2000.
"Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis,"
CEPR Discussion Papers
2495, C.E.P.R. Discussion Papers.
- Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc.
- Redoano, Michela & Scharf, Kimberley, 2002.
"The Political Economy of Policy Centralization: Direct Versus Representative Democracy,"
CEPR Discussion Papers
3631, C.E.P.R. Discussion Papers.
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- Michela Redoano & Kimberley Ann Scharf, 2001. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CESifo Working Paper Series 602, CESifo Group Munich.
- Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
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- Christos Kotsogiannis & Robert Schwager, 2006.
"Political Uncertainty and Policy Innovation,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 8(5), pages 779-805, December.
- Massimo Bordignon & Luca Colombo & Umberto Galmarini, 2003. "Fiscal Federalism and Endogenous Lobbies' Formation," CESifo Working Paper Series 1017, CESifo Group Munich.
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