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Tax Decentralization Notwithstanding Regional Disparities

Author

Listed:
  • Martín Besfamille
  • Antonio Bellofatto

Abstract

In assessing the desirability for tax decentralization reforms, a dilemma between efficiency and redistribution emerges. By limiting the ability of the central government to redistribute resources towards regions in financial needs, decentralization curbs incentives for excessive subnational spending and enhances fiscal discipline, but may also widen interregional disparities by triggering tax competition for mobile tax bases. We provide a formal treatment of this trade-off, and shed light on the optimal degree of fiscal decentralization. We find that tax decentralization can be optimal even under Rawlsian social preferences which only weight the welfare of the poorest region in the federation.

Suggested Citation

  • Martín Besfamille & Antonio Bellofatto, 2019. "Tax Decentralization Notwithstanding Regional Disparities," Documentos de Trabajo 520, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:520
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-520.pdf
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    Cited by:

    1. Kalamov, Zarko & Staal, Klaas, 2023. "Too-big-to-fail in federations?," Regional Science and Urban Economics, Elsevier, vol. 101(C).
    2. Amitrajeet A. Batabyal, 2024. "Lagging regions in the U.S. are thriving in the post-COVID-19 era: Nice but why?," Romanian Journal of Regional Science, Romanian Regional Science Association, vol. 18(2), pages 35-44, December.
    3. D’Inverno, Giovanna & Vidoli, Francesco & De Witte, Kristof, 2023. "Sustainable budgeting and financial balance: Which lever will you pull?," European Journal of Operational Research, Elsevier, vol. 309(2), pages 857-871.
    4. Deng, Yanru & Nepal, Rabindra & Shao, Xuefeng & Ding, Chante Jian & Wu, Zhan, 2024. "Zooming in or zooming out: Energy strategy, developmental parity and regional entrepreneurial dynamism," Energy Economics, Elsevier, vol. 140(C).
    5. Mauri, Nicola, 2024. "How fiscally autonomous are local governments? An empirical test," Journal of Public Economics, Elsevier, vol. 239(C).
    6. Jile Sun & Xiao Sun & Yihan Wang, 2025. "Does Tax Competition Among Local Governments Improve the Green Economic Efficiency in the Yellow River Basin?," Sustainability, MDPI, vol. 17(11), pages 1-20, June.

    More about this item

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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