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The Game of Negotiations: Ordering Issues and Implementing Agreements

Along with the rise in income inequality in the U.S., we have observed a simultaneous move toward fiscal devolution and increased government reliance on private provision of public goods. This paper argues that these phenomena are related. We describe a model of jurisdiction and policy formation in which the structure of government provision is endogenous and public good provision levels are determined by a political process that can exploit private motives for voluntary giving. The model predicts that an increase in income inequality leads to decentralization, with local jurisdictions becoming more income-homogeneous than the population as a whole. This reduction in local income heterogeneity, combined with a reduced tax base, results in increased reliance by government on private provision.

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File URL: http://economics.uwo.ca/research/department_working_papers_docs/wp2000/wp2000_11.pdf
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Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 200011.

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Date of creation: 2000
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Handle: RePEc:uwo:uwowop:200011
Contact details of provider: Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

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