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Public budget composition, fiscal (de)centralization, and welfare

Calin Arcalean, Gerhard Glomm (), Ioana Schiopu () and Jens Suedekum ()

Canadian Journal of Economics, 2010, vol. 43, issue 3, 832-859

Abstract: We study the optimal degree of fiscal decentralization in a dynamic federal economy where governments decide on budget size and its allocation between public education and infrastructure spending. We find that full centralization of tax and expenditure policies is optimal when infrastructure productivity is similar across regions. When differences are not too large, partial centralization is optimal. With strong differences, full decentralization becomes optimal. National steady-state output tends to be highest under full decentralization. We provide a justification for the mixed evidence regarding the Oates conjecture by showing that full dominates partial decentralization, despite being inferior to complete decentralization.

JEL-codes: E62 H72 H74 (search for similar items in EconPapers)
Date: 2010
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Journal Article: Public budget composition, fiscal (de)centralization, and welfare (2010) Downloads
Working Paper: Public Budget Composition, Fiscal(De)Centralization, and Welfare (2007) Downloads
Working Paper: Public Budget Composition, Fiscal (De)Centralization and Welfare (2007) Downloads
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