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Tobin meets Oates: Solidarity and the optimal fiscal federal structure

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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.

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  • 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. 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. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
    7. 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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    10. Gerard Debreu, 1963. "On a Theorem of Scarf," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 30(3), pages 177-180.
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    12. 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.
    13. Pauly, Mark V., 1973. "Income redistribution as a local public good," Journal of Public Economics, Elsevier, vol. 2(1), pages 35-58, February.
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    Cited by:

    1. Teresa Garcia-Milà & Therese J. McGuire & Wallace E. Oates, 2018. "Strength in diversity? Fiscal federalism among the fifty US states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 1071-1091, August.
    2. Teresa Garcia-Milà & Therese J. McGuire, 2018. "When theory meets practice: can we implement the optimal fiscal federal structure?," Economics Working Papers 1663, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2019.

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    More about this item

    Keywords

    fiscal decentralization; specific egalitarianism; solidarity; externalities.;
    All these keywords.

    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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