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To tax or to spend first? On the commitment to policy instruments in a decentralized leadership game

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  • Steve Billon

    (LaRGE Research Center, Université de Strasbourg)

Abstract

Fiscal federalism suggests that local public goods generating interjurisdictional spillovers should be provided by a central government. This paper analyzes the provision of global or (im)pure public goods when regional governments commit to tax rate or public expenditure before a central government provides transfers to regions. The central government ex post motivation for providing transfers and public good provision is affected by the pre commitment scenario and the degree of public good spillovers. For each combination of commitment and spillovers, I consider the corrective policies that the central government should implement to address the fiscal externalities. These federal policies include income redistribution or matching grants in addition to interregional redistribution. JEL classification: D62 ; H71 ; H72 ; H77

Suggested Citation

  • Steve Billon, 2025. "To tax or to spend first? On the commitment to policy instruments in a decentralized leadership game," Working Papers of LaRGE Research Center 2025-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2025-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal federalism ; Decentralized leadership ; Spillovers ; Tax competition;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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