Fiscal Institutions and Wage Bargaining in the Local Public Sector

In a theoretical analysis of the properties of different wage setting and financing systems in the local public sector, two financing systems are considered. A benchmark model with local financing through local taxes is compared with a system of centralized financing through grants, where taxes are decided at the national level. It is shown that the wage outcomes under centralized financing depend heavily on the order of moves in the budgetary game between the central and local levels.
JEL Classification : H 23; J 45