To tax or to spend first? On the commitment to policy instruments in a decentralized leadership game

Steve Billon

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: Fiscal federalism suggests that local public goods generating interjurisdictional spillovers should be provided by a central government. This paper analyzes the provision of global or (im)pure public goods when regional governments commit to tax rate or public expenditure before a central government provides transfers to regions. The central government ex post motivation for providing transfers and public good provision is affected by the pre commitment scenario and the degree of public good spillovers. For each combination of commitment and spillovers, I consider the corrective policies that the central government should implement to address the fiscal externalities. These federal policies include income redistribution or matching grants in addition to interregional redistribution. JEL classification: D62 ; H71 ; H72 ; H77

Keywords: Fiscal federalism; Decentralized leadership; Spillovers; Tax competition (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2025-02

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