A centralized directional distance model for efficient and horizontally equitable grants allocation to local governments

Pablo Arocena, Fermín Cabasés and Pedro Pascual

Socio-Economic Planning Sciences, 2022, vol. 81, issue C

Abstract: This paper proposes a directional distance model for efficient resource allocation when there is a centralized decision maker who oversees all units. The model is designed to allocate grants from an upper-tier government to the municipalities under its jurisdiction. Local governments employ the grants together with levied local taxes to provide services to their citizens. The objective of our formulation is to optimize grants allocation across municipalities taking into account efficiency, effectiveness and horizontal fiscal equity criteria. The model easily allows the setting of alternative priorities of the central decision maker, thus permitting quantification of the trade-off between the potential increase in the provision of local services and its associated cost. The model is applied to the allocation of current grants in the autonomous community of Navarre in northern Spain.

Keywords: centralized resource allocation; Efficiency; Horizontal equity; Local governments; Grants (search for similar items in EconPapers)
JEL-codes: D24 H71 H72 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:81:y:2022:i:c:s0038012120307849

DOI: 10.1016/j.seps.2020.100947

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