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A Median Voter Model of the Vertical Fiscal Gap

Author

Listed:
  • Dahlby, Bev

    () (University of Alberta, Department of Economics)

  • Rodden, Jonathan

    () (Stanford University)

  • Wilson, Sam

    (University of Alberta, Department of Economics)

Abstract

A median voter model is developed to explain the size of the vertical fiscal gap in a federation, i.e. the extent to which subnational governments' expenditures exceed their own-source tax revenues. In our model, individuals vote in subnational elections and in federal elections to determine tax rates and spending on public services by each level of government and transfers to the subnational governments. In the resulting political equilibrium, intergovernmental transfers from the central government are affected by the tax sensitivity of the tax bases of the central and subnational governments, the degree of inequality in the tax bases of the subnational governments, the allocation of spending responsibilities between the central and subnational governments, and whether the federal legislature is unicameral or bicameral.

Suggested Citation

  • Dahlby, Bev & Rodden, Jonathan & Wilson, Sam, 2009. "A Median Voter Model of the Vertical Fiscal Gap," Working Papers 2009-14, University of Alberta, Department of Economics.
  • Handle: RePEc:ris:albaec:2009_014
    as

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    File URL: https://sites.ualberta.ca/~econwps/2009/wp2009-14.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sharma, Chanchal Kumar, 2010. "Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations," MPRA Paper 32145, University Library of Munich, Germany.
    2. Sharma, Chanchal Kumar, 2007. "Rescuing the concept of vertical fiscal imbalance," MPRA Paper 39343, University Library of Munich, Germany, revised 2010.

    More about this item

    Keywords

    intergovernmental grants; median voter model; fiscal federalism; vertical fiscal gap; vertical fiscal imbalance;

    JEL classification:

    • 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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