Equalization and the Decentralization of Revenue-Raising in a Federation
We study federal economies in which regional governments have responsibility for delivering public services and redistributive objectives apply. The implications of these for the assignment of revenue-raising instruments and fiscal transfers, both vertical and horizontal, are considered. Models of heterogenous regions of varying degrees of complexity and generality are constructed. For each case, we determine what fiscal instruments must be given to the regions and what inter-governmental transfers must be made in order that the social optimum is achieved. With heterogenous households and regions, the social optimum can be decentralized by making regions responsible for redistribution and implementing equalization transfers that depend on the number of households of each type.
|Date of creation:||Apr 2001|
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