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Redistribution and Provision of Public Goods in an Economic Federation

  • Aronsson, Thomas

    ()

    (Department of Economics)

  • Blomquist, Sören

    ()

    (Department of Economics)

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 Uppsala University, Department of Economics in its series Working Paper Series with number 2004:4.

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Length: 23 pages
Date of creation: 20 Mar 2004
Date of revision:
Handle: RePEc:hhs:uunewp:2004_004
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
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Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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  1. Thomas Aronsson & Magnus Wikstrom, 2003. "Optimal taxation and risk-sharing arrangements in an economic federation," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 104-120, January.
  2. 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.
  3. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  4. BOADWAY, Robin & MARCHAND, Maurice & VIGNEAULT, Marianne, . "The consequences of overlapping tax bases for redistribution and public spending in a federation," CORE Discussion Papers RP -1326, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. N. Anders Klevmarken, 2003. "On Household Wealth Trends in Sweden over the 1990s," Economics Working Paper Archive wp_395, Levy Economics Institute.
  6. Lindvall, Lars, 2003. "Does Public Spending on Youths Affect Crime Rates?," Working Paper Series 2004:3, Uppsala University, Department of Economics.
  7. Holmlund, Bertil, 2003. "The Rise and Fall of Swedish Unemployment," Working Paper Series 2003:13, Uppsala University, Department of Economics.
  8. Aronsson, Thomas & Blomquist, Sören, 2004. "Redistribution and Provision of Public Goods in an Economic Federation," Umeå Economic Studies 636, Umeå University, Department of Economics.
  9. Taslimi, Mohammad, 2003. "Optimal Earnings-Related Unemployment Benefits," Working Paper Series 2003:16, Uppsala University, Department of Economics.
  10. Hedström, Peter & Kolm, Ann-Sofie & Åberg, Yvonne, 2003. "Social interactions and unemployment," Working Paper Series 2003:15, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  11. Hanna Ågren & Matz Dahlberg & Eva Mörk, 2007. "Do politicians’ preferences correspond to those of the voters? An investigation of political representation," Public Choice, Springer, vol. 130(1), pages 137-162, January.
  12. Hakkinen, Iida, 2006. "Working while enrolled in a university: does it pay?," Labour Economics, Elsevier, vol. 13(2), pages 167-189, April.
  13. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  14. Eklöf, Matias, 2003. "Assessing Social Costs of Inefficient Procurement Design," Working Paper Series 2003:12, Uppsala University, Department of Economics.
  15. Dahlberg, Susanne & Nahum, Ruth-Aïda, 2003. "Cohort Effects on Earnings Profiles: Evidence from Sweden," Arbetsrapport 2003:3, Institute for Futures Studies.
  16. Edmark, Karin, 2003. "The Effects of Unemployment on Property Crime: Evidence from a Period of Unusually Large Swings in the Business Cycle," Working Paper Series 2003:14, Uppsala University, Department of Economics.
  17. Bergman, Mats A. & Jakobsson, Maria & Razo, Carlos, 2003. "An Econometric Analysis of the European Commission's Merger Decisions," Working Paper Series 2003:6, Uppsala University, Department of Economics.
  18. Marceau, Nicolas & Boadway, Robin, 1994. " Minimum Wage Legislation and Unemployment Insurance as Instruments for Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 67-81.
  19. Fredriksson, Peter & Johansson, Per, 2003. "Employment, mobility, and active labor market programs," Working Paper Series 2003:3, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  20. Hansson, Ingemar & Stuart, Charles, 1987. "The suboptimality of local taxation under two-tier fiscal federalism," European Journal of Political Economy, Elsevier, vol. 3(3), pages 407-411.
  21. Sören Blomquist & Luca Micheletto, 2008. "Age-related Optimal Income Taxation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 45-71, 03.
  22. Savvidou, Eleni, 2003. "The Relationship Between Skilled Labor and Technical Change," Working Paper Series 2003:27, Uppsala University, Department of Economics.
  23. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, 07.
  24. 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.
  25. Thomas Aronsson & Magnus Wikström, 2001. "Optimal Taxes and Transfers in a Multilevel Public Sector," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(2), pages 158-, February.
  26. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer, vol. 3(2), pages 137-155, May.
  27. Engström, Per, 2003. "Unemployment Benefits and Optimal Non-Linear Income Taxation," Working Paper Series 2003:3, Uppsala University, Department of Economics.
  28. Peter Fredriksson & Bertil Holmlund, 2006. "Optimal unemployment insurance design: Time limits, monitoring, or workfare?," International Tax and Public Finance, Springer, vol. 13(5), pages 565-585, September.
  29. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  30. Bev Dahlby, 1996. "Fiscal externalities and the design of intergovernmental grants," International Tax and Public Finance, Springer, vol. 3(3), pages 397-412, July.
  31. Lindhe, Tobias & Södersten, Jan & Öberg, Ann, 2003. "Economic Effects of Taxing Different Organizational Forms under a Dual Income Tax," Working Paper Series 2003:19, Uppsala University, Department of Economics.
  32. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
  33. Bergman, Mats, 2003. "When Should an Incumbent Be Obliged to Share its Infrastructure with an Entrant Under the General Competition Rules?," Working Paper Series 2003:25, Uppsala University, Department of Economics.
  34. Pettersson-Lidbom, Per & Dahlberg, Matz, 2003. "An Empirical Approach for Evaluating Soft Budget Constraints," Working Paper Series 2003:28, Uppsala University, Department of Economics.
  35. 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.
  36. Johnson, William R, 1988. "Income Redistribution in a Federal System," American Economic Review, American Economic Association, vol. 78(3), pages 570-73, June.
  37. Gottfries, Nils, 2003. "Booms and Busts in EMU," Working Paper Series 2003:29, Uppsala University, Department of Economics.
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