Interregional Disparities in Productivity and the Choice of Fiscal Regime

Kimiko Terai ()
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Kimiko Terai: Hosei University

No 70813, Working Papers from University of California-Irvine, Department of Economics

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 problem of system selection is examined. It is shown 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.

Keywords: Interregional and intergenerational spillovers; Decentralization; Centralization; Disparity in productivity; Dynamic political economy model (search for similar items in EconPapers)
JEL-codes: H23 H41 H73 H77 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-ure
Date: 2008-02
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Persistent link: http://EconPapers.repec.org/RePEc:irv:wpaper:070813

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