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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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Paper provided by University of Brescia, Department of Economics in its series Working Papers with number 0812.

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Date of creation: 2008
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Handle: RePEc:ubs:wpaper:0812
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  1. David Wildasin & James Marton, 2007. "Medicaid Expenditures and State Budgets: Past, Present, and Future," Working Papers 2007-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  2. Marie-Laure Breuille & Robert J. Gary-Bobo, 2007. "Sharing budgetary austerity under free mobility and asymmetric information: an optimal regulation approach to fiscal federalism," Working Papers 33933, Institut National de la Recherche Agronomique, France.
  3. Rosella Levaggi, 2002. "Decentralized Budgeting Procedures for Public Expenditure," Public Finance Review, , vol. 30(4), pages 273-295, July.
  4. Hikaru Ogawa & David Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," Working Papers 2007-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  5. Tracy Snoddon & Jean-François Wen, 2003. "Grants structure in an intergovernmental fiscal game," Economics of Governance, Springer, vol. 4(2), pages 115-126, 08.
  6. 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.
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