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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
Date of revision:
Handle: RePEc:ubs:wpaper:0812
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  1. Rosella Levaggi, 2002. "Decentralized Budgeting Procedures for Public Expenditure," Public Finance Review, , vol. 30(4), pages 273-295, July.
  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. 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.
  4. 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.
  5. Hikaru Ogawa & David E. Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," CESifo Working Paper Series 2142, CESifo Group Munich.
  6. Tracy Snoddon & Jean-François Wen, 2003. "Grants structure in an intergovernmental fiscal game," Economics of Governance, Springer, vol. 4(2), pages 115-126, 08.
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