Optimal fiscal decentralization: Redistribution and welfare implications

Simple item page
dc.citation.epage234en_US
dc.citation.spage224en_US
dc.citation.volumeNumber61en_US
dc.contributor.authorAslim, E. G.en_US
dc.contributor.authorNeyapti, B.en_US
dc.date.accessioned2018-04-12T11:12:27Z
dc.date.available2018-04-12T11:12:27Zen_US
dc.date.issued2017en_US
dc.departmentDepartment of Economicsen_US
dc.description.abstractThe literature has been inconclusive regarding the welfare effects of fiscal decentralization (FD), defined here as the extent to which local governments collect and spend local tax revenues. We present an original model to investigate formally the distributional and welfare implications of FD. In contrast to the standard approach that compares the implications of full FD with that of centralization, we consider that the central government chooses the level of FD to maximize welfare in a heterogeneous country. Noncooperatively, local governments choose their tax collection effort to maximize local utility. We show that an increase in the tax rate leads optimal FD to increase so as to compensate for the welfare loss from decreasing optimal local tax effort. Hence, welfare and income distribution improve in FD at its intermediate, rather than extreme, levels. We coin this result as the decentralization-Laffer curve. As regional spillovers increase, FD is less desirable as it deteriorates welfare and income distribution. This finding provides a novel support for the decentralization theorem and contributes to the fiscal policy debate. © 2016 Elsevier Ltden_US
dc.embargo.release2020-02-01en_US
dc.identifier.doi10.1016/j.econmod.2016.12.008en_US
dc.identifier.eissn1873-6122
dc.identifier.issn0264-9993
dc.identifier.urihttp://hdl.handle.net/11693/37401en_US
dc.language.isoEnglishen_US
dc.publisherElsevieren_US
dc.relation.isversionofhttp://dx.doi.org/10.1016/j.econmod.2016.12.008en_US
dc.source.titleEconomic Modellingen_US
dc.subjectFiscal decentralizationen_US
dc.subjectFiscal efficiencyen_US
dc.subjectIncome distributionen_US
dc.subjectWelfareen_US
dc.titleOptimal fiscal decentralization: Redistribution and welfare implicationsen_US
dc.typeArticleen_US

Files

Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
Optimal_fiscal_decentralization_Redistribution_and_welfare_implications.pdf
Size:
804.34 KB
Format:
Adobe Portable Document Format
Description:
Full printable version
Download

Collections

Department of Economics