Would less regional income distribution justify the present call for devolution?

Rosella Levaggi and Francesco Menoncin ()

International Tax and Public Finance, 2017, vol. 24, issue 5, No 3, 780-799

Abstract: Abstract We model a local public good with spillovers, in a framework where devolution is socially inefficient. Nevertheless, we show that decentralisation may be preferred by one region if it implies a reduction in regional income redistribution. This result is due to the inter-regional mechanism of the equalisation grant. For an expenditure-based grant, we define a threshold for regional income disparity above which decentralisation is preferred, while for a resource-based grant the threshold depends on the spillover and the difference in preferences for the local public good. Finally, for given levels of regional income disparity we show which grant form may minimise the claims for decentralisation.

Keywords: Devolution; Equalisation grant; Regional income distribution (search for similar items in EconPapers)
JEL-codes: H4 H7 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10797-016-9436-x

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