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Local government co-financing of the central government's transport infrastructure investment

Johanna Jussila Hammes and Svante Mandell ()

Economics of Transportation, 2019, vol. 18, issue C, 40-49

Abstract: We study two districts’ voluntary co-financing of a centrally provided public good, e.g., transport infrastructure. Outcomes are compared to a surplus-maximizing level of public good provision. We show that both co-financing and lobbying raise the amount of public good provided. Co-financing and lobbying are substitutes. Co-financing (or co-financing combined with lobbying) raises the provision of the public good to a higher level than lobbying alone. Co-financing can thus reduce rent-seeking. Finally, we show that under uncertainty about district type (high or low benefit), co-financing combined with lobbying can be used to find and retain a separating equilibrium.

Keywords: Co-financing; Fiscal federalism; Lobbying; Rent-seeking; Separating equilibrium (search for similar items in EconPapers)
JEL-codes: D8 H2 H4 H7 R5 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.ecotra.2019.03.001

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