Redistribution and Administrative Federalism

Robert Schwager

Canadian Journal of Economics, 1997, vol. 30, issue 4, 1161-83

Abstract: In this paper, redistribution is studied in the presence of migration externalities. Administrative federalism is defined as a constitution where statutory tax and transfer levels are set nationally, while local administrations may refuse to pay the transfer or rebate the tax in single cases, thereby introducing horizontal inequity. With risk aversion, this is less attractive than reducing the level of redistribution in a horizontally equal way. It is shown that administrative federalism leads to higher transfers and higher utilitarian welfare than decentralized decisions, that it may implement the first-best solution, and that horizontal inequality never occurs in equilibrium.

Date: 1997
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