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Tobin meets Oates: Solidarity and the optimal fiscal federal structure

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Abstract

We explore the implications for the optimal degree of fiscal decentralization when people’s preferences for goods and services, which classic treatments of fiscal federalism (Oates, 1972) place in the purview of local governments, exhibit specific egalitarianism (Tobin, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.

Suggested Citation

  • Xavier Calsamiglia & Teresa Garcia-Milà & Therese J. McGuire, 2010. "Tobin meets Oates: Solidarity and the optimal fiscal federal structure," Economics Working Papers 1226, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1226
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    1. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2005. "International Unions," American Economic Review, American Economic Association, vol. 95(3), pages 602-615, June.
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    3. Brown, Charles C. & Oates, Wallace E., 1987. "Assistance to the poor in a federal system," Journal of Public Economics, Elsevier, vol. 32(3), pages 307-330, April.
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    6. Tobin, James, 1970. "On Limiting the Domain of Inequality," Journal of Law and Economics, University of Chicago Press, vol. 13(2), pages 263-277, October.
    7. James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1188-1239, December.
    8. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
    9. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
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    11. Jacques Cremer & Thomas R. Palfrey, 2000. "Federal Mandates by Popular Demand," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 905-927, October.
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    Cited by:

    1. Teresa Garcia-Milà & Therese J. McGuire & Wallace E. Oates, 2017. "Strength in diversity? Fiscal federalism among the fifty U.S. states," Economics Working Papers 1586, Department of Economics and Business, Universitat Pompeu Fabra.

    More about this item

    Keywords

    fiscal decentralization; specific egalitarianism; solidarity; externalities.;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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