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Public Good Provision in a Federalist Country: Tiebout Competition, Fiscal Equalization, and Incentives for Efficiency in Switzerland

  • Philippe K. Widmer

    ()

    (Socioeconomic Institute, University of Zurich)

  • Peter Zweifel

    ()

    (Socioeconomic Institute, University of Zurich)

The purpose of this paper is twofold. First, it measures the efficiency in the provision of public goods by local jurisdictions applying Data Envelopment Analysis (DEA). Second, it relates ef- ficiency scores to a fiscal equalization scheme designed to mitigate the negative consequences of Tiebout competition. The data come from the 26 cantons of Switzerland (2000-2004), a country characterized by marked federalism. Results show the equalization scheme to indeed have a negative influence on performance, resulting in an efficiency-equity trade-off (Stiglitz, 1988). However, substitution of earmarked payments by lump-sum payments as part of the 2008 reform is likely to enhance cantonal performance.

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File URL: http://www.soi.uzh.ch/research/wp/2008/wp0804.pdf
File Function: revised version, 2010
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Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0804.

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Length: 27 pages
Date of creation: Apr 2008
Date of revision: Dec 2010
Handle: RePEc:soz:wpaper:0804
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