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Redistribution and Provision of Public Goods in an Economic Federation

  • Aronsson, Thomas

    ()

    (Department of Economics, Umeå University)

  • Blomquist, Sören

    ()

    (Department of Economics, Uppsala University, Box 513, SE – 751 20 Uppsala, Sweden)

This paper concerns redistribution and provision of public goods in an economic federation with two levels of government: a local government in each locality and a central government for the economic federation as a whole. We assume that each locality is characterized by two ability-types (high and low), and that their distribution differs between localities. The set of policy instruments facing the central government consists of a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and the transfers from the central government to finance the provision of local public goods. The purpose is to characterize the tax and expenditure structure in a decentralized setting, where the central and local governments have distinct roles to play, and also compare this tax and expenditure structure with the second best resource allocation. We show how the redistributive role of taxation is combined with a corrective role, since tax base sharing among the central and local governments gives rise to a vertical fiscal external effect. In addition, the central government does not in general implement the second best resource allocation with the instruments at its disposal.

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Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 636.

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Length: 23 pages
Date of creation: 19 Apr 2004
Date of revision:
Handle: RePEc:hhs:umnees:0636
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Department of Economics, Umeå University, S-901 87 Umeå, Sweden

Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
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  19. Häkkinen, Iida & Uusitalo, Roope, 2003. "The Effect of a Student Aid Reform on Graduation: A Duration Analysis," Working Paper Series 2003:8, Uppsala University, Department of Economics.
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  27. Hallberg, Daniel, 2003. "A Description of Routes out of the Labor Force for Workers in Sweden," Working Paper Series 2003:23, Uppsala University, Department of Economics.
  28. Dahlberg, Matz & Eklöf, Matias, 2003. "Relaxing the IIA Assumption in Locational Choice Models: A Comparison Between Conditional Logit, Mixed Logit, and Multinomial Probit Models," Working Paper Series 2003:9, Uppsala University, Department of Economics.
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