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Tax decentralization and local government size

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  • Paolo Liberati

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  • Agnese Sacchi

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Abstract

This paper investigates the relationship between fiscal federalism and the sizes of local governments. While many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it, they are more silent regarding the effects of different types of tax autonomy. The paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments (tax-separation), rather than on tax-base sharing, would restrain local public expenditures. Using an unbalanced panel of OECD countries, the key finding is that only property taxes—mostly based on a “tax-separation” scheme—seem to favor smaller local governments. Thus, while tax decentralization is a necessary condition for limiting the growth of local governments, it does not appear sufficient, as tax-separation schemes among government levels would in fact be required. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Paolo Liberati & Agnese Sacchi, 2013. "Tax decentralization and local government size," Public Choice, Springer, vol. 157(1), pages 183-205, October.
  • Handle: RePEc:kap:pubcho:v:157:y:2013:i:1:p:183-205 DOI: 10.1007/s11127-012-9937-9
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    Cited by:

    1. Alberto Batinti & Andrea Filippetti & Luca Andriani, 2017. "Why Does Social Capital Increase Government Performance? The Role of Local Elections across Italian Municipalities," Management Working Papers 13, Birkbeck Department of Management, revised Apr 2017.
    2. Lars Feld, 2014. "James Buchanan’s theory of federalism: from fiscal equity to the ideal political order," Constitutional Political Economy, Springer, vol. 25(3), pages 231-252, September.
    3. Sergio Beraldo & Massimo Bordignon & Simone Pellegrino & Massimiliano Piacenza & Gilberto Turati, 2017. "Fiscally Responsible Mafia-clans," Working papers 043, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
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    5. Francese, Maura & Piacenza, Massimiliano & Romanelli, Marzia & Turati, Gilberto, 2014. "Understanding inappropriateness in health spending: The role of regional policies and institutions in caesarean deliveries," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 262-277.
    6. Agnese Sacchi & Simone Salotti, 2017. "The influence of decentralized taxes and intergovernmental grants on local spending volatility," Regional Studies, Taylor & Francis Journals, pages 507-522.
    7. Davide Furceri & Agnese Sacchi & Simone Salotti, 2016. "Can Fiscal Decentralization Alleviate Government Consumption Volatility?," Open Economies Review, Springer, vol. 27(4), pages 611-636, September.
    8. repec:bla:jecsur:v:31:y:2017:i:4:p:1095-1129 is not listed on IDEAS
    9. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    10. David Cantarero & Patricio Perez, 2012. "Decentralization and regional government size in Spain," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 11(3), pages 211-237, December.
    11. Sacchi, Agnese & Salotti, Simone, 2014. "The asymmetric nature of fiscal decentralization: theory and practice," MPRA Paper 54506, University Library of Munich, Germany.
    12. Cavalieri, Marina & Ferrante, Livio, 2016. "Does fiscal decentralization improve health outcomes? Evidence from infant mortality in Italy," Social Science & Medicine, Elsevier, vol. 164(C), pages 74-88.
    13. Presbitero, Andrea F. & Sacchi, Agnese & Zazzaro, Alberto, 2014. "Property tax and fiscal discipline in OECD countries," Economics Letters, Elsevier, vol. 124(3), pages 428-433.

    More about this item

    Keywords

    H71; H77; H20; Fiscal decentralization; Tax sharing; Tax separation; Property taxes; Local government size;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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