Economics at your fingertips  

Can Federal Grants Mitigate Social Competition?

Jacques Dreze, Charles Figuieres () and Jean Hindriks ()

CESifo Economic Studies, 2007, vol. 53, issue 4, 596-617

Abstract: The European economic integration leads to increasing mobility of factors, thereby threatening the stability of social transfer programs. This article investigates the possibility to achieve by means of voluntary matching grants both the optimal allocation of factors and the optimal level of redistribution in the presence of factor mobility. We use a fiscal competition model a la Wildasin (1991) in which states differ in their technologies and preferences for redistribution. We first investigate a simple process in which the federal authority progressively raises the matching grants to the district choosing the lowest transfer and all districts respond optimally to the resulting change in transfers all around. This process is shown to increase efficiency of both production and redistribution. However, it does not guarantee that all districts gain, nor that an efficient level of redistribution is attained. Assuming complete information among districts, we derive the willingness of each district to match the contribution of other districts and we show that the aggregate willingness to pay for matching rates converges to zero when both the efficient level of redistribution and the efficient allocation of factors are achieved. We then describe an adjustment process for the matching rates that will lead districts to the efficient outcome and guarantee that everyone will gain. (JEL Classification: H23, H70) Copyright , Oxford University Press.

Date: 2007
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Can federal grants mitigate social competition? (2007) Downloads
Working Paper: Can federal grants mitigate social competition? (2007) Downloads
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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

CESifo Economic Studies is currently edited by Gerhard Illing

More articles in CESifo Economic Studies from CESifo Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ( this e-mail address is bad, please contact ) and Christopher F. Baum ().

Page updated 2021-04-13
Handle: RePEc:oup:cesifo:v:53:y:2007:i:4:p:596-617