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Decentralisation vs fiscal federalism in the presence of impure public goods


  • Rosella Levaggi


The traditional theory for fiscal federalism assumes that the lower tier is more efficient in producing local public goods because of information asymmetry, while on the finance side Central Government might be more efficient in raising resources that can be redistributed through grants-in-aid. This scheme does not take into account that services produced at local level are usually impure public goods. The model developed in this paper allows to derive grants-in aid distribution formulae in this environment and a set of rules that allows to establish when fiscal federalism is a superior alternative to decentralisation.

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  • Rosella Levaggi, 2008. "Decentralisation vs fiscal federalism in the presence of impure public goods," Working Papers 0812, University of Brescia, Department of Economics.
  • Handle: RePEc:ubs:wpaper:0812

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    References listed on IDEAS

    1. Hikaru Ogawa & David E. Wildasin, 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," American Economic Review, American Economic Association, vol. 99(4), pages 1206-1217, September.
    2. Akai, Nobuo & Mikami, Kazuhiko, 2006. "Fiscal decentralization and centralization under a majority rule: A normative analysis," Economic Systems, Elsevier, vol. 30(1), pages 41-55, March.
    3. Breuille, Marie-Laure & Gary-Bobo, Robert J., 2007. "Sharing budgetary austerity under free mobility and asymmetric information: An optimal regulation approach to fiscal federalism," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1177-1196, June.
    4. Rosella Levaggi, 2002. "Decentralized Budgeting Procedures for Public Expenditure," Public Finance Review, , vol. 30(4), pages 273-295, July.
    5. Tracy Snoddon & Jean-François Wen, 2003. "Grants structure in an intergovernmental fiscal game," Economics of Governance, Springer, vol. 4(2), pages 115-126, August.
    6. Marton, James & Wildasin, David E., 2007. "Medicaid Expenditures and State Budgets: Past, Present, and Future," National Tax Journal, National Tax Association, vol. 60(2), pages 279-304, June.
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    Cited by:

    1. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 257-280, February.
    2. Monica Billio & Roberto Casarin, 2010. "Bayesian Estimation of Stochastic-Transition Markov-Switching Models for Business Cycle Analysis," Working Papers 1002, University of Brescia, Department of Economics.
    3. Rosella Levaggi & Francesco Menoncin, 2009. "Decentralized provision of merit and impure public goods," Working Papers 0909, University of Brescia, Department of Economics.
    4. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
    5. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains Taxation in the Real World," CESifo Working Paper Series 2674, CESifo Group Munich.
    6. Del Boca, Alessandra & Fratianni, Michele & Spinelli, Franco & Trecroci, Carmine, 2010. "The Phillips curve and the Italian lira, 1861-1998," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 182-197, August.
    7. Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2011. "Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 438-468, November.
    8. Alessandro Fedele & Raffaele Miniaci, 2010. "Do Social Enterprises Finance Their Investments Differently from For-profit Firms? The Case of Social Residential Services in Italy," Journal of Social Entrepreneurship, Taylor & Francis Journals, vol. 1(2), pages 174-189, October.
    9. Alessandro Fedele & Francesco Liucci & Andrea Mantovani, 2009. "Credit availability in the crisis: the European investment bank group," Working Papers 0913, University of Brescia, Department of Economics.

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