Fiscal Decentralization, Redistribution and Growth
This paper analyzes the welfare implications of a transfer mechanism in a fiscally decentralized economy where local governments select their tax collection effort to maximize their lifetime utility. We consider a transfer rule that both punishes for the lack of efficiency in tax-collection and compensates for the deviation of pre-tax or transfer income from a target level; in addition, a portion of transfers is considered to be directed towards investment. Simulations of the model’s optimal solution reveal that increasing punishment always results in increased steady state effort, despite the disincentives that increasing income compensation or directed investment may generate. Increasing punishment also improves capital accumulation the lower the rate of directed investments and the lower the tax rate. Further, efficiency in tax collection is achieved the lower the rate of directed investment and the higher the punishment rate.
|Date of creation:||Jun 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://erf.ku.edu.trEmail:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jorge Martinez-Vazquez & Robert McNab, 2005.
"Fiscal Decentralization,Macrostability, and Growth,"
International Center for Public Policy Working Paper Series, at AYSPS, GSU
paper0506, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Jorge Martínez Vázquez & Robert M. McNab, 2006. "Fiscal decentralization, macrostability and growth," Hacienda Pública Española, IEF, vol. 179(4), pages 25-49, September.
- Jorge Martínez-Vázquez & Robert M. McNab, . "Fiscal Decentralization, Macrostability And Growth," Working Papers 11-03 Classification-JEL , Instituto de Estudios Fiscales.
- Luiz R. De Mello Jr., 2004.
"Can Fiscal Decentralization Strengthen Social Capital?,"
Public Finance Review,
, vol. 32(1), pages 4-35, January.
- International Monetary Fund, 2000. "Can Fiscal Decentralization Strengthen Social Capital?," IMF Working Papers 00/129, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:koc:wpaper:1114. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sumru Oz)
If references are entirely missing, you can add them using this form.