Centralization Trade-off with Non-Uniform Taxes

Peter Tuchyòa () and Martin Gregor ()
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Peter Tuchyòa: Center for Economic Research and Graduate Education-Economics Institute, Prague, Czech Republic, http://www.cerge.cuni.cz/default.asp

No 81, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: When local public goods are provided by a centralized authority, spillovers may be coordinated, but heterogeneity in preferences may be suppressed. Besley and Coate (2003) have already solved this classic trade-off for a uniform tax regime. Here, we extend their approach by allowing for a non-uniform tax regime. We find that centralization with our tax system necessarily increases welfare in comparison to uniform-tax centralization. Importantly, with non-cooperative legislators coming from homogenous districts, our centralization dominates decentralization for any degree of spillovers. In other cases, it at least improves odds of centralization, if measured by utilitarian yardstick.

Keywords: Decentralization; Local Public Goods; Distributive Politics; Political Economy (search for similar items in EconPapers)
JEL-codes: H40 H70 H72 P51 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2005, Revised 2005
New Economics Papers: this item is included in nep-pbe, nep-pol and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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