IDEAS home Printed from https://ideas.repec.org/p/rpp/wpaper/0001.html
   My bibliography  Save this paper

Fiscal federalism, local public works and corruption

Author

Listed:
  • Martin Besfamille

Abstract

In ¯fiscal federal systems, local public works that generate spillovers are often ¯nanced by transfers from higher levels of government. In this article, we consider a governmental hierarchy composed by a Federal and a Local Government. The former delegates to the latter the task of ¯nding a ¯rm to undertake a local public work. As the Local Government has more information about the e±ciency of the firm, it communicates its private information to the Federal Government which decides the way to fund the project. If side-contracts between the local authority and the ¯rm in charge with constructing the project are feasible, di®erent stakes for collusion may arise. The Local Government can overstate the e±ciency of the ¯rm to obtain extra rents or can also understate it, to ensure the e®ective undertaking of the project. In order to ¯nd the optimal allocations, we derive a \Collusion-Proofness" property which states that, in order to maximize its expected welfare, the Federal Government can restrict to o®er collusion-proof contracts. These contracts indicate the transfers between the Federal Government, the local authority and the ¯rm of constructors. Finally we characterize the distortions set to attenuate the resulting implementation costs. They concern the cost of the project and the decision about its e®ective undertaking. The most important result of this article is that the undertaking of useless projects, at an in°ated cost, is an optimal response of the Federal Government to the threat of collusion between the local authorities and the firm of constructors.

Suggested Citation

  • Martin Besfamille, 2000. "Fiscal federalism, local public works and corruption," CREPP Working Papers 0001, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
  • Handle: RePEc:rpp:wpaper:0001
    as

    Download full text from publisher

    File URL: http://www2.ulg.ac.be/crepp/papers/crepp-wp200001.pdf
    Download Restriction: no

    Other versions of this item:

    More about this item

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rpp:wpaper:0001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mathieu Lefebvre). General contact details of provider: http://edirc.repec.org/data/crulgbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.