Tax decentralization notwithstanding regional disparities

Antonio Bellofatto and Martin Besfamille

Journal of Urban Economics, 2021, vol. 123, issue C

Abstract: In assessing tax decentralization optimality, a dilemma between efficiency and redistribution emerges: tax decentralization enhances fiscal discipline, but may also widen interregional disparities by triggering tax competition over mobile tax bases. We present a model that formalizes this trade-off, and find that tax decentralization can be optimal even under Rawlsian social preferences which only weight the welfare of the poorest region in the economy. We also revisit the empirical relationship between tax decentralization and regional disparities. Our estimates uncover a hump-shaped profile, which can be compatible with our normative prescriptions when social aversion for interregional inequality is low.

Keywords: Fiscal federalism; Tax competition; Regional disparities (search for similar items in EconPapers)
JEL-codes: H77 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0094119021000280
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Tax decentralization notwithstanding regional disparities (2019)
Working Paper: Tax Decentralization Notwithstanding Regional Disparities (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:123:y:2021:i:c:s0094119021000280

DOI: 10.1016/j.jue.2021.103346

Access Statistics for this article

Journal of Urban Economics is currently edited by S.S. Rosenthal and W.C. Strange

More articles in Journal of Urban Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().