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Matching grants and Ricardian equivalence

  • FIGUIÈRES, Charles
  • HINDRIKS, Jean

This paper investigates the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although somewhat less ective. We also find that optimal matching rates are independent of the number of jurisdictions and their strategic variables contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2001048.

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Date of creation: 00 Oct 2001
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Handle: RePEc:cor:louvco:2001048
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  1. David E. Wildasin, 2000. "Factor Mobility and Fiscal Policy in the EU: Policy Issues and Analytical Approaches," CESifo Working Paper Series 344, CESifo Group Munich.
  2. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jean Hindriks & Gareth D. Myles, 2000. "Strategic Inter-Regional Transfers," Working Papers 417, Queen Mary University of London, School of Economics and Finance.
  4. Robin Boadway & Pierre Pestieau & David Wildasin, 1987. "Tax-Transfer Policies and the Voluntary Provision of Public Goods," Working Papers 682, Queen's University, Department of Economics.
  5. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  6. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  7. Hindriks, J., 1998. "Tax versus Transfer Competition," Discussion Papers 9808, Exeter University, Department of Economics.
  8. Charles Brown & Wallace E. Oates, 1985. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
  9. Bernheim, B Douglas, 1986. "On the Voluntary and Involuntary Provision of Public Goods," American Economic Review, American Economic Association, vol. 76(4), pages 789-93, September.
  10. Andreas Pfingsten & Andreas Wagener, 1997. "Centralized vs. Decentralized Redistribution: A Case for Interregional Transfer Mechanisms," International Tax and Public Finance, Springer, vol. 4(4), pages 429-451, November.
  11. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  12. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
  13. Milleron, Jean-Claude, 1972. "Theory of value with public goods: A survey article," Journal of Economic Theory, Elsevier, vol. 5(3), pages 419-477, December.
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