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Fairness and decentralization: a tale of two countries

Fabio Padovano ()

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Abstract: Fairness is advocated to justify policies of equalization of income levels across regions of the same country. Normative welfare economic theories maintain that the central government should carry out these policies as decentralization would exacerbate regional income gaps. These theories neglect that market forces too may produce convergence of regional incomes; their interplay with fiscal equalization policies has not been examined thoroughly. Using data from a highly centralized country (Italy) and a highly decentralized one (the U. S.) the analysis demonstrates that fiscal policies can forestall convergence driven by market forces and that decentralization can be associated with the choice of fiscal policies compatible with market-induced convergence of regional incomes.

Keywords: Decentralization Convergence of regional incomes; Fiscal equalization policies; Market forces; Income equalization; Fairness (search for similar items in EconPapers)
Date: 2012
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Published in Review of Institution and Economics, 2012, 11, pp.157-193

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