Decentralized government and regional income insurance
One advantage of a decentralized system of government is that it allows government expenditure and taxation to better suit local preferences for public goods. On the other hand, if income is uncertain, a centralized system that incorporates interregional transfers allows regions to share consumption risk associated with region-specific shocks. Previous studies have compared decentralized and centralized systems using single period models in which all shocks are effectively permanent. This paper shows that when output shocks are temporary, if local governments borrow in periods with negative shocks and save in periods with positive shocks, a decentralized regime can stabilize income as effectively as a centralized regime. When output shocks are both temporary and permanent, the tradeoff between decentralized and centralized regimes depends on the difference in preferences for the public good across regions, the probability that disturbances to output are temporary, and the degree to which shocks are correlated across regions. Copyright Springer-Verlag 2004
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 38 (2004)
Issue (Month): 1 (03)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00168/index.htm|
More information through EDIRC
|Order Information:||Web: http://link.springer.de/orders.htm|
When requesting a correction, please mention this item's handle: RePEc:spr:anresc:v:38:y:2004:i:1:p:173-187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.