Asymmetric and Non-Linear Adjustments in Local Fiscal Policy
We introduce possible asymmetries and non-linearities in the analysis of the taxing and spending decisions of local governments. Our empirical results evidence a down-ward inflexibility of both local government spending and taxation, pointing to a budget-maximizing local government. These asymmetries will need to be explicitly tackled in fiscal federalism reforms, in order for decentralization to positively contribute to the achievement of the European Monetary Union objectives.
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|Note:||An earlier version of this paper has been presented at the North American Summer Meeting of the Econometric Society, and at the annual meeting of the European Public Choice Society. We would like to thank the participants for their useful feedback. The usual disclaimer applies.|
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