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Decentralized provision of merit and impure public goods

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  • Rosella Levaggi
  • Francesco Menoncin

Abstract

In some countries reforms of public service provision have been accompanied by a parallel process of devolution. However, the application of fiscal federalism has not always produced the desired effects. We argue that this result may depend on two factors: a) a lack of coordination causing a non-optimal allocation of resources at aggregate level; b) a lack of incentive to coordination. In our model we assume that goods to be provided at local level are impure public goods. This assumption allows us to consider a more realistic scenario where the production and consumption of the local public good do not necessarily coincide. In an environment with full information and no restriction on the quantities to be provided as the one we propose, fiscal federalism is always suboptimal for the whole community, as it may be expected. However, we show that this does not necessarily mean that in fiscal federalism each local authority is worse off. This implies that coordination is never the outcome of the strategic interaction between the actors and that when the assumption of symmetric information is removed, Central Government will have to expect some local authorities to play strategically against such intervention.

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  • Rosella Levaggi & Francesco Menoncin, 2009. "Decentralized provision of merit and impure public goods," Working Papers 0909, University of Brescia, Department of Economics.
  • Handle: RePEc:ubs:wpaper:0909
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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.
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    3. 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.
    4. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains Taxation in the Real World," CESifo Working Paper Series 2674, CESifo Group Munich.
    5. 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.
    6. 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.
    7. 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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