Decentralisation vs fiscal federalism in the presence of impure public goods

Rosella Levaggi

Working Papers from University of Brescia, Department of Economics

Abstract: The traditional theory for fiscal federalism assumes that the lower tier is more efficient in producing local public goods because of information asymmetry, while on the finance side Central Government might be more efficient in raising resources that can be redistributed through grants-in-aid. This scheme does not take into account that services produced at local level are usually impure public goods. The model developed in this paper allows to derive grants-in aid distribution formulae in this environment and a set of rules that allows to establish when fiscal federalism is a superior alternative to decentralisation.

Date: 2008
New Economics Papers: this item is included in nep-pbe and nep-ure
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Citations: View citations in EconPapers (9)

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