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Why do Differences in the Degree of Fiscal Decentralization Endure?

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  • Xavier Calsamiglia
  • Teresa Garcia-Milà
  • Therese J. McGuire

Abstract

Differences in the degree of fiscal decentralization observed between the U.S. and many countries in Europe cannot be explained within the standard theory of fiscal decentralization. By introducing preferences for solidarity − equality in the provision of public goods and services across regions − we show that different decentralization schemes can coexist as efficient choices. We develop a model of fiscal decentralization that incorporates tastes for solidarity, multiple levels of government, and various tax and transfer instruments. We find that when solidarity is added to the traditional fiscal-federalism framework, the choice along the decentralized-to-centralized spectrum shifts toward a more centralized system.

Suggested Citation

  • Xavier Calsamiglia & Teresa Garcia-Milà & Therese J. McGuire, 2006. "Why do Differences in the Degree of Fiscal Decentralization Endure?," CESifo Working Paper Series 1877, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1877
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    References listed on IDEAS

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    1. Brown, Charles C. & Oates, Wallace E., 1987. "Assistance to the poor in a federal system," Journal of Public Economics, Elsevier, vol. 32(3), pages 307-330, April.
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    3. James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1188-1239, December.
    4. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
    5. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
    6. 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.
    7. Murray, Sheila E & Evans, William N & Schwab, Robert M, 1998. "Education-Finance Reform and the Distribution of Education Resources," American Economic Review, American Economic Association, vol. 88(4), pages 789-812, September.
    8. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
    9. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
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    Cited by:

    1. Roberto Guerrero Compeán, 2008. "Decentralization: Panacea or Pandora’s Box? Fiscal Perversity in Mexico," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 89-110, November.
    2. Ferrario, Caterina & Zanardi, Alberto, 2011. "Fiscal decentralization in the Italian NHS: What happens to interregional redistribution?," Health Policy, Elsevier, vol. 100(1), pages 71-80, April.

    More about this item

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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