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Government market power and public goods provision in a federation

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  • Matthew Wilson

    (University of Michigan)

Abstract

In standard models of fiscal federalism, tax competition among subnational jurisdictions depresses government expenditures. Centralization therefore increases government spending, assuming that both local and central governments are price takers in the market for public goods. If the central government has greater market power than constituent jurisdictions, then centralization may be associated with reduced government spending. Whether centralization or decentralization provides more public goods depends on the relative strengths of tax competition and market power. In an illustrative example, decentralized public goods spending can range from 25 to 120% of centralized spending.

Suggested Citation

  • Matthew Wilson, 2021. "Government market power and public goods provision in a federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 68-89, February.
    • Handle: RePEc:kap:itaxpf:v:28:y:2021:i:1:d:10.1007_s10797-020-09614-5
    DOI: 10.1007/s10797-020-09614-5
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    More about this item

    Keywords

    Fiscal federalism; Public goods; Market power; Tax competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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