Tobin Meets Oates: Solidarity and the Optimal Fiscal Federal Structure

Therese J. McGuire, Teresa Garcia-Mila and Xavier Calsamiglia

No 486, Working Papers from Barcelona School of Economics

Abstract: We explore the implications for the optimal degree of fiscal decentralization when people's preferences for goods and services, which classic treatments of fiscal federalism (Oates, 1972) place in the purview of local governments, exhibit specific egalitarianism (Tobin, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.

Keywords: Externalities; Fiscal decentralization; specific egalitarianism; solidarity (search for similar items in EconPapers)
JEL-codes: H42 H77 (search for similar items in EconPapers)
Date: 2015-09
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Related works:
Journal Article: Tobin meets Oates: solidarity and the optimal fiscal federal structure (2013)
Working Paper: Tobin meets Oates: Solidarity and the optimal fiscal federal structure (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:486

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