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Tax morale and (de-)centralization: An experimental study

Werner Güth (), Maria Levati () and Rupert Saugruber
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Rupert Saugruber: University of Innsbruck

Public Economics from EconWPA

Abstract: We consider an economy composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two regions are pooled and used to finance both public goods according to the population size of each region. The experiment shows that centralization induces lower tax morale and less efficient outcomes. The reasons are that centralization gives rise to an interregional incentive problem and creates inequalities in income between regions.

Keywords: Tax morale; Fiscal federalism; Public goods experiments (search for similar items in EconPapers)
JEL-codes: C91 H26 H41 H70 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-pbe, nep-pub and nep-ure
Date: 2005-11-17
Note: Type of Document - pdf; pages: 34
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Journal Article: Tax morale and (de-)centralization: An experimental study (2005) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwppe:0511014

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