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Matching Grants and Ricardian Equivalence

Author

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  • Charles Figuieres

    (CORE)

  • Jean Hindriks

    (Queen Mary, University of London)

Abstract

This paper questions the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although much less effective. We also find that optimal matching rates are independent of the jurisdictions' choice of policy variable contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

Suggested Citation

  • Charles Figuieres & Jean Hindriks, 2001. "Matching Grants and Ricardian Equivalence," Working Papers 440, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:wp440
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    File URL: http://www.econ.qmul.ac.uk/media/econ/research/workingpapers/archive/wp440.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1745-1763, September.
    2. Jacques Drèze & Charles Figuières & Jean Hindriks, 2006. "Voluntary Matching Grants can Forestall Social Dumping," Working Papers 06-13, LAMETA, Universtiy of Montpellier, revised Nov 2006.
    3. Robert Fenge & Volker Meier, 2006. "Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration," CESifo Working Paper Series 1741, CESifo Group Munich.
    4. Hikaru Ogawa, 2006. "Tax competition, spillovers, and subsidies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(4), pages 849-858, December.

    More about this item

    Keywords

    Fiscal federalism; Ricardian equivalence; Matching grants;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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