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Fiscal Federalism in a Dynamic Model


  • Du Du

    (Department of applied economics, Peking University)

  • Heng-fu Zou

    (Department of applied economics, Peking University)


This paper outlines a dynamic model with three levels of government: federal, state and local in the Stackelberg game structure with the superor government as the leader and all its subordinate governments the followers.It studies the optimal design of block grants and matching grants from both the federal government and the state governments to their numerous subordinate governments respectively as well as the optimal public expendtures and public capital stocks of di¡èerent levels of government in the long run. Using speci?c form of utility function, we ?nd that the optimal intergovernmental grants are very di¡èerent between the level of federal government and state governments.

Suggested Citation

  • Du Du & Heng-fu Zou, 2001. "Fiscal Federalism in a Dynamic Model," CEMA Working Papers 59, China Economics and Management Academy, Central University of Finance and Economics.
  • Handle: RePEc:cuf:wpaper:59

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