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The central government grant allocation problem in the presence of misrepresentation and cheating

Listed author(s):
  • Yvon Rocaboy

    (CREM - Centre de Recherche en Economie et Management - UR1 - Université de Rennes 1 - Université de Caen Basse-Normandie - CNRS - Centre National de la Recherche Scientifique)

  • Guy Gilbert

This study deals with the central government grant allocation problem under conditions of asymmetric information. Using a simple model, we examine herein the optimal design of random audit and incentive mechanisms to encourage the grantee (the local government authority) to report truthfully on local parameters required in the granting process. The local government authority must choose between two possibilities: a menu of contracts that could be considered as a matching grant programme with random auditing vs. a lump-sum grant without any audit mechanism. We will show that addressing the optimal grant system problem is similar to comparing slopes on the graph of the indirect local government welfare function at two distinct points. Copyright Springer-Verlag Berlin/Heidelberg 2004

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Paper provided by HAL in its series Post-Print with number halshs-00068990.

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Date of creation: 2004
Publication status: Published in Economics of Governance, Springer Verlag, 2004, pp.137-147
Handle: RePEc:hal:journl:halshs-00068990
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00068990
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  1. Levaggi, Rosella & Smith, Peter, 1994. "On the Intergovernmental Fiscal Game," Public Finance = Finances publiques, , vol. 49(1), pages 72-86.
  2. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, July.
  3. Helmuth Cremer & Maurice Marchand & Pierre Pestieau, 1996. "Interregional redistribution through tax surcharge," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 157-173, May.
  4. Tracy Snoddon & Jean-François Wen, 2003. "Grants structure in an intergovernmental fiscal game," Economics of Governance, Springer, vol. 4(2), pages 115-126, 08.
  5. M M Barrow, 1989. "Local authority responses to grants: different types of response and equilibrium," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 7(3), pages 313-320, June.
  6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  7. Gilbert, Guy & Picard, Pierre, 1996. "Incentives and optimal size of local jurisdictions," European Economic Review, Elsevier, vol. 40(1), pages 19-41, January.
  8. M M Barrow, 1986. "Central grants to local governments: a game theoretic approach," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 4(2), pages 155-164, April.
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