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Redistribution and Provision of Public Goods in an Economic Federation

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  • THOMAS ARONSSON
  • SÖREN BLOMQUIST

Abstract

This paper concerns redistribution and public good provision in an economic federation with two levels of government: a local government in each locality and a (first mover) central government. Each locality is characterized by two ability‐types, and the ability‐distribution differs across localities. The central government redistributes via a nonlinear income tax and a lump‐sum transfer to each local government, while the local governments use proportional income taxes and provide local public goods. We show how the redistributive role of taxation is combined with a corrective role, and how the central government can implement the second best resource allocation.

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  • Thomas Aronsson & Sören Blomquist, 2008. "Redistribution and Provision of Public Goods in an Economic Federation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(1), pages 125-143, February.
    • Handle: RePEc:bla:jpbect:v:10:y:2008:i:1:p:125-143
    DOI: 10.1111/j.1467-9779.2008.00354.x
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    Cited by:

    1. Tomas Sjögren, 2019. "Labor income taxes in an economic federation with proportional membership fees," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1137-1165, October.
    2. Blomquist, Sören & Micheletto, Luca, 2004. "Redistribution, In-Kind Transfers and Matching Grants when the Federal Government Lacks Information on Local Costs," Working Paper Series 2004:15, Uppsala University, Department of Economics.
    3. Willem Sas, 2017. "Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 817-853, September.
    4. Granlund, David & Wikström, Magnus, 2013. "Public Provision and Cross-Border Health Care," HUI Working Papers 98, HUI Research.
    5. Nicolas Gravel & Michel Poitevin, 2014. "Should a Non-Rival Public Good Always Be Provided Centrally?," Working Papers halshs-01063191, HAL.
    6. Aronsson, Thomas, 2010. "Optimal income taxation and decentralized fiscal federalism," Regional Science and Urban Economics, Elsevier, vol. 40(4), pages 187-195, July.
    7. Willem Sas, 2015. "Commuting in a federation: Horizontal and vertical tax externalities revisited," ERSA conference papers ersa15p690, European Regional Science Association.
    8. Sören Blomquist & Vidar Christiansen, 2008. "Taxation and Heterogeneous Preferences," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 218-244, June.
    9. Thomas Aronsson & Sören Blomquist, 2008. "Redistribution and Provision of Public Goods in an Economic Federation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(1), pages 125-143, February.
    10. Raúl A. Ponce Rodríguez & Ikuho Kochi & Luis E. Gutiérrez Casas, 2015. "The structure of political power and redistribution in economies with multiple governments," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 30(2), pages 269-303.
    11. Eren Gürer, 2021. "Equity-efficiency implications of a European tax and transfer system," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(2), pages 301-346, August.
    12. Eren Gürer & Alfons J. Weichenrieder, 2021. "Pro-rich Inflation and Optimal Income Taxation," Public Finance Review, , vol. 49(6), pages 815-844, November.
    13. Österholm, Pär, 2004. "Estimating the Relationship between Age Structure and GDP in the OECD Using Panel Cointegration Methods," Working Paper Series 2004:13, Uppsala University, Department of Economics.
    14. Sebastian G. Kessing & Benny Schneider, 2014. "Regional Investment and Individual Redistribution in a Federation," Volkswirtschaftliche Diskussionsbeiträge 168-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    15. Lohse Tim, 2009. "Redistributional Consequences of Decentralizing the Tax-Transfer Scheme," Review of Economics, De Gruyter, vol. 60(2), pages 168-180, August.
    16. Sören Blomquist & Luca Micheletto, 2009. "Nonlinear Income Taxation And Matching Grants In A Federation With Decentralized In-Kind Transfers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 543-575, May.
    17. Granlund David & Wikström Magnus, 2016. "Public Provision and Cross-Border Health Care," Forum for Health Economics & Policy, De Gruyter, vol. 19(2), pages 157-177, December.

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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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