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A Median Voter Model of the Vertical Fiscal Gap

Bev Dahlby (), Jonathan Rodden () and Leonard Wilson ()
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Jonathan Rodden: Stanford University, Postal: Department of Political Science, 616 Serra Street, Encina Hall Central, Room 444, Stanford, CA 94305-6044

No 2009-14, Working Papers from University of Alberta, Department of Economics

Abstract: A median voter model is developed to explain the size of the vertical fiscal gap in a federation, i.e. the extent to which subnational governments' expenditures exceed their own-source tax revenues. In our model, individuals vote in subnational elections and in federal elections to determine tax rates and spending on public services by each level of government and transfers to the subnational governments. In the resulting political equilibrium, intergovernmental transfers from the central government are affected by the tax sensitivity of the tax bases of the central and subnational governments, the degree of inequality in the tax bases of the subnational governments, the allocation of spending responsibilities between the central and subnational governments, and whether the federal legislature is unicameral or bicameral.

Keywords: intergovernmental grants; median voter model; fiscal federalism; vertical fiscal gap; vertical fiscal imbalance (search for similar items in EconPapers)
JEL-codes: H71 H72 H77 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2009-01
New Economics Papers: this item is included in nep-cdm, nep-pbe, nep-pol and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2009_014

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