Federalism, taxation, and economic growth

John William Hatfield

Journal of Urban Economics, 2015, vol. 87, issue C, 114-125

Abstract: We present a model of endogenous growth where government provides a productive public good financed by income and capital taxes. In equilibrium, a decentralized government chooses tax policy to maximize economic growth, while a centralized government does not do so. Furthermore, these conclusions hold regardless of whether governments are beholden to a median voter or are rent-maximizing Leviathans. However, a decentralized government will under-provide public goods which benefit citizens directly, while a central government beholden to the median voter will optimally invest in such public goods.

Keywords: Economic growth; Federalism; Taxation; Productive public goods (search for similar items in EconPapers)
JEL-codes: D78 H21 H23 H71 H72 H77 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:87:y:2015:i:c:p:114-125

DOI: 10.1016/j.jue.2015.01.003

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