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Tenets of Fiscal Federalism and Decentralization

In: Vanishing Borders of Urban Local Finance

Author

Listed:
  • Shyam Nath

    (Amrita Vishwa Vidyapeetham University)

  • Yeti Nisha Madhoo

    (Amrita Vishwa Vidyapeetham University)

Abstract

The cornerstones of jurisdictional formation and fiscal decentralization are heterogeneous preferences for local public goods and services and minimal interjurisdictional spillovers. First and second-generation fiscal federalism theories present an account of how fiscal decentralization stands strong even when decentralized provision is possible under centralized decisions. It is also demonstrated that in very small countries with homogeneous preferences and absolute absence of interjurisdictional spillover, citizen-voters may still prefer local provision as against central provision. An attempt is made to present an alternative model of local fiscal decisions in an assembly of elected representatives using a game theoretic behavior on their part. The basic condition of equilibrium is equalization of relative marginal concessions in the presence of potential threat of coalition on the part of other legislators. This formulation is in sharp contrast to the equilibrium achieved in the Tiebout model through migration and voting by the feet.

Suggested Citation

  • Shyam Nath & Yeti Nisha Madhoo, 2022. "Tenets of Fiscal Federalism and Decentralization," Springer Books, in: Vanishing Borders of Urban Local Finance, chapter 0, pages 49-65, Springer.
    • Handle: RePEc:spr:sprchp:978-981-19-5300-2_3
    DOI: 10.1007/978-981-19-5300-2_3
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