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Vertical intergovernmental relationship and economic growth

Author

Listed:
  • Yutaro Murakami

    (Graduate School of Economics, Osaka University)

Abstract

This paper constructs a multi-region endogenous growth model with productive government spending to examine vertical intergovernmental relationship. Specifically, we analyze the contribution of fiscal decentralization on the optimal tax rates of national and local taxes and on the economic growth rate. In this model, when the behavior of the governments is taken into consideration, the national tax rate results in an overtaxation and the local tax rate results in an undertaxation compared to the optimal tax rates. In this case, promoting fiscal decentralization increases economic growth. This result is consistent with Oates' claim and with the results of recent studies about the decentralization effect on economic growth.

Suggested Citation

  • Yutaro Murakami, 2005. "Vertical intergovernmental relationship and economic growth," Economics Bulletin, AccessEcon, vol. 8(12), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-05h70082
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    More about this item

    Keywords

    Endogenous growth;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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