How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization

Marko Koethenbuerger

Journal of Public Economics, 2011, vol. 95, issue 11, 1516-1522

Abstract: Previous literature widely assumes that taxes are optimized in local public finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments' influences the way local governments decide on public policy. Unlike the usual presumption, the paper shows that local governments may choose to optimize over expenditures. The result holds when federal policy subsidizes local taxation. The results offer a new perspective of the efficiency implications of federal policy toward local governments and, thereby, enable a more precise characterization of local government behavior in fiscal federalism.

Keywords: Tax vs. expenditure optimization; Federalism; Endogenous commitment; Fiscal incentives; Policy interaction (search for similar items in EconPapers)
JEL-codes: H1 H3 H7 (search for similar items in EconPapers)
Date: 2011
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/S0047272711000958
Full text for ScienceDirect subscribers only

Related works:
Working Paper: How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization (2010)
Working Paper: How Do Local Governments Decide on Public Policy in Fiscal Federalism? Tax vs. Expenditure Optimization (2008)
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:95:y:2011:i:11:p:1516-1522

DOI: 10.1016/j.jpubeco.2011.06.006

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 ().