Tax Decentralization Notwithstanding Regional Disparities

Martin Besfamille and Antonio Bellofatto

No 520, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: In assessing the desirability for tax decentralization reforms, a dilemma between efficiency and redistribution emerges. By limiting the ability of the central government to redistribute resources towards regions in financial needs, decentralization curbs incentives for excessive subnational spending and enhances fiscal discipline, but may also widen interregional disparities by triggering tax competition for mobile tax bases. We provide a formal treatment of this trade-off, and shed light on the optimal degree of fiscal decentralization. We find that tax decentralization can be optimal even under Rawlsian social preferences which only weight the welfare of the poorest region in the federation.

JEL-codes: H77 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Tax decentralization notwithstanding regional disparities (2021)
Working Paper: Tax decentralization notwithstanding regional disparities (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:520

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