Interregional Disparities in Productivity and the Choice of Fiscal Regime

Kimiko Terai

Journal of Public Economic Theory, 2009, vol. 11, issue 3, pages 383-409

Abstract: Two districts with divergent productivity levels engage in policy-making on the provision of local public goods that enhance future income and hence create a dynamic linkage across periods. The policy choices of district representatives are derived under alternative fiscal systems, and the relative merits of the systems are evaluated. It is predicted that a decentralized system is more likely to be selected in a more equal society. On the other hand, when a great deal of benefit spills over from a local public good, or when policy makers are expected to care solely about the immediate effects of their decisions on their districts, a centralized system is more likely to be selected. Copyright © 2009 Wiley Periodicals, Inc..

Date: 2009

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