Tobin meets Oates: solidarity and the optimal fiscal federal structure |
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Authors: | Xavier Calsamiglia Teresa Garcia-Milà Therese J McGuire |
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Institution: | 1. Department of Economics and Business, Universitat Pompeu Fabra and Barcelona GSE, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain 2. Management and Strategy Department, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL, 60208, USA
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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 in Fiscal federalism, 1972) place in the purview of local governments—exhibit specific egalitarianism (Tobin in J. Law Econ. 13(2): 263–277, 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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