Sharing Budgetary Austerity under Free Mobility and Asymmetric Information: An Optimal Regulation Approach to Fiscal Federalism

Marie-Laure Breuillé () and Robert Gary-Bobo ()

No 1559, CESifo Working Paper Series from CESifo

Abstract: In the present article, Tiebout meets Laffont and Tirole in the land of Fiscal Federalism. We use a non-trivial Principal-Multi-Agent model to characterize the optimal intergovernmental grant schedule, when the cost of local public goods depends on hidden characteristics and actions of local governments, and under citizen free mobility. We show that local governments earn informational rents, and how optimal local taxes, public good production levels and land prices are jointly distorted at the second-best optimum, as a consequence of free mobility and asymmetric information. The effect of informational asymmetries is to decrease the average production of public goods and to increase the inter-jurisdictional variance of taxes and public-good production.

Keywords: asymmetric information; Principal-Agent model; public budget deficits; free-mobility equilibrium; fiscal federalism (search for similar items in EconPapers)
JEL-codes: D72 D82 H70 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Sharing budgetary austerity under free mobility and asymmetric information: An optimal regulation approach to fiscal federalism (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1559

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