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Centralized or decentralized financing of local governments? Consequences for efficiency and inequality of service provision

Author

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  • Lars-Erik Borge

    () (Department of Economics and Centre for Economic Research, Norwegian University of Science and Technology)

Abstract

Compared with most countries the Norwegian system of financing local governments is highly centralized. Grants make up a substantial part of revenues and local taxes are highly regulated by the center. The development of the system was motivated by a desire to equalize service provision throughout the country. The purpose of this paper is to analyze possible consequences of more decentralized financing with local tax discretion. Contrary to the conventional wisdom the analysis indicates that decentralized financing is likely to give more equal provision of local public services. In addition, substantial efficiency gains can be obtained.

Suggested Citation

  • Lars-Erik Borge, 2006. "Centralized or decentralized financing of local governments? Consequences for efficiency and inequality of service provision," Working Paper Series 7806, Department of Economics, Norwegian University of Science and Technology.
  • Handle: RePEc:nst:samfok:7806
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    File URL: http://www.svt.ntnu.no/iso/WP/2006/14efftap_wp.pdf
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    References listed on IDEAS

    as
    1. Borge, Lars-Erik & Rattso, Jorn, 1995. "Demographic shift, relative costs and the allocation of local public consumption in Norway," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 705-726, December.
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    Cited by:

    1. Izabela Karpowicz, 2012. "Narrowing Vertical Fiscal Imbalances in Four European Countries," IMF Working Papers 12/91, International Monetary Fund.

    More about this item

    Keywords

    Centralized financing; Decentralized financing; Tax discretion; Efficiency gains; Equalization;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • 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

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