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Interregional Disparities in Productivity and the Choice of Fiscal Regime

  • Kimiko Terai

    ()

    (Hosei University)

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    Two districts with divergent productivity levels engage in policy-making on the provision of local public goods that enhance future income and hence create a dynamic linkage across periods. The policy choices of district representatives are derived under alternative fiscal systems, and the problem of system selection is examined. It is shown that a decentralized system is more likely to be selected in a more equal society. On the other hand, when a great deal of benefit spills over from a local public good, or when policy makers are expected to care solely about the immediate effects of their decisions on their districts, a centralized system is more likely to be selected.

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    File URL: http://www.economics.uci.edu/files/docs/workingpapers/2007-08/terai-13.pdf
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    Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 070813.

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    Length: 37 pages
    Date of creation: Feb 2008
    Date of revision:
    Handle: RePEc:irv:wpaper:070813
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    Web page: http://www.economics.uci.edu/

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