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Fiscal federalism with a single instrument to finance government

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  • Maravall Rodríguez, Carlos

Abstract

The structure of each level of government in the United States has changed over the last 200 years. Wallis (2000) has presented empirical evidence that relates the dominance of each level not to the functions government decides to undertake (the expenditures it commits to), but to the costs and benefits of the financial instruments each level has available (the way each level extracts revenues). In this paper we provide theoretical evidence for this hypothesis. We show why two different levels of government (e.g. state and federal) would not want to use a common instrument to finance the same good.

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  • Maravall Rodríguez, Carlos, 2005. "Fiscal federalism with a single instrument to finance government," UC3M Working papers. Economics we052213, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we052213
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    1. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
    2. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
    3. Klor, Esteban F., 2006. "A positive model of overlapping income taxation in a federation of states," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 703-723, May.
    4. Raquel Fernandez & Richard Rogerson, 2003. "Equity and Resources: An Analysis of Education Finance Systems," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 858-897, August.
    5. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
    6. 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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