Regional state capacity and the optimal degree of fiscal decentralization

Antonio Bellofatto and Martin Besfamille

Journal of Public Economics, 2018, vol. 159, issue C, 225-243

Abstract: We study the optimal degree of fiscal decentralization in a federation. Regional governments are characterized by their abilities to deliver public goods (administrative capacity) and to raise tax revenues (fiscal capacity). Two regimes are compared on efficiency grounds. Under partial decentralization, regional governments rely on central bailouts to complete local projects in financing needs. Under full decentralization, marginal financing is achieved via local capital taxes. We show that the presence of sufficiently low levels of administrative capacity is a necessary condition for full decentralization dominance. This condition may also be sufficient, depending on the projects' characteristics. Some extensions are presented.

Keywords: Fiscal federalism; State capacity; Partial and full fiscal decentralization; Bailouts; Hard budget constraints (search for similar items in EconPapers)
JEL-codes: H77 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272717302128
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Regional State Capacity and the Optimal Degree of Fiscal Decentralization (2015)
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:pubeco:v:159:y:2018:i:c:p:225-243

DOI: 10.1016/j.jpubeco.2017.12.010

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

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