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Exit and Voice: Yardstick Versus Fiscal Competition Across Governments

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  • Massimo Bordignon

Abstract

Government competition is often invoked as one of the main advantage of decentralization. But competition across governments can take two forms, through tax competition (exit) or yardstick competition (voice). We show these two forms may affect political equilibria in opposite directions. Tax competition increases the disciplining effect of elections on politicians, but it reduces the selection effect. Yardstick competition works in just the opposite direction. However, the two forms of competition may be complementary as expected welfare is concerned. Copyright Società Italiana degli Economisti (Italian Economic Association) 2015

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  • Massimo Bordignon, 2015. "Exit and Voice: Yardstick Versus Fiscal Competition Across Governments," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(1), pages 117-137, March.
    • Handle: RePEc:spr:italej:v:1:y:2015:i:1:p:117-137
    DOI: 10.1007/s40797-015-0012-9
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    1. Revelli, Federico, 2019. "The electoral migration cycle," European Journal of Political Economy, Elsevier, vol. 59(C), pages 461-482.
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    More about this item

    Keywords

    Tax competition; Yardstick competition; Fiscal federalism; Decentralization; Political equilibria; H11; H25; H77;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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