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Efficient earmarking under decentralized fiscal commitments

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Abstract

Earmarked federal grants are ubiquitous and significant. Traditional fiscal federalism is unable to explain these grants’ widespread utilization. Recent arguments focusing on the potential benefits of centralized earmarking in reducing incentives for the creation of soft budgets at subcentral government levels merit formalization. I show that universal earmarking improves the efficiency of a federation in which regional governments are able to commit to provision of all regional public goods. However, efficient earmarking need not be universal: It should only involve private consumption and fiscal budgets for public goods subject to decentralized fiscal commitments. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Emilson Silva, 2015. "Efficient earmarking under decentralized fiscal commitments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(4), pages 683-701, August.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:4:p:683-701
    DOI: 10.1007/s10797-015-9365-0
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    References listed on IDEAS

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    1. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, vol. 64(3), pages 551-559, November.
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    10. Breuillé, Marie-Laure & Madiès, Thierry & Taugourdeau, Emmanuelle, 2010. "Gross versus net equalization scheme in a federation with decentralized leadership," Journal of Urban Economics, Elsevier, vol. 68(2), pages 205-214, September.
    11. Silva, Emilson Caputo Delfino, 2014. "Selective decentralized leadership," Journal of Urban Economics, Elsevier, vol. 83(C), pages 1-5.
    12. Baskaran, Thushyanthan, 2012. "Soft budget constraints and strategic interactions in subnational borrowing: Evidence from the German States, 1975–2005," Journal of Urban Economics, Elsevier, vol. 71(1), pages 114-127.
    13. Buettner, Thiess & Wildasin, David E., 2006. "The dynamics of municipal fiscal adjustment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1115-1132, August.
    14. Silva, Emilson C. D. & Caplan, Arthur J., 1997. "Transboundary Pollution Control in Federal Systems," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 173-186, October.
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    18. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
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    Cited by:

    1. Emilson C.D. Silva, 2016. "Decentralized Leadership," CESifo Working Paper Series 6064, CESifo Group Munich.
    2. Sengupta, Bodhisatva, 2016. "Endogenous Leadership in a Federal Transfer Game," Working Papers 16/180, National Institute of Public Finance and Policy.
    3. Thierry Madiès & Emmanuelle Taugourdeau, 2017. "Decentralized leadership in a federation and competition for mobile firms: Does economic integration matter?," Working Papers 2017-73, Center for Research in Economics and Statistics.
    4. Riemer P. Faber & Pierre Koning, 2017. "Why not fully spend a conditional block grant?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 60-95, February.
    5. Emilson Caputo Delfino Silva, 2017. "Tax competition and federal equalization schemes with decentralized leadership," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 164-178, February.

    More about this item

    Keywords

    Earmarked grants; Decentralized fiscal commitments; Soft budgets; Selective decentralized leadership; C72; D62; H41; H77; R5;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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