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Matching grants and Ricardian equivalence

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  • FIGUIÈRES, Charles
  • HINDRIKS, Jean

Abstract

This paper investigates the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although somewhat less ective. We also find that optimal matching rates are independent of the number of jurisdictions and their strategic variables contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

Suggested Citation

  • FIGUIÈRES, Charles & HINDRIKS, Jean, 2001. "Matching grants and Ricardian equivalence," LIDAM Discussion Papers CORE 2001048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2001048
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    Cited by:

    1. Robert Fenge & Volker Meier, 2006. "Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration," CESifo Working Paper Series 1741, CESifo.
    2. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.
    3. Jacques H. Drèze & Charles Figuieres & Jean Hindriks, 2007. "Can Federal Grants Mitigate Social Competition?," CESifo Economic Studies, CESifo Group, vol. 53(4), pages 596-617, December.
    4. Jacques H. Drèze & Charles Figuières & Jean Hindriks, 2006. "Voluntary Matching Grants Can Forestall Social Dumping," CESifo Working Paper Series 1867, CESifo.
    5. Hikaru Ogawa, 2006. "Tax competition, spillovers, and subsidies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(4), pages 849-858, December.
    6. Darong Dai & Weige Huang & Liqun Liu & Guoqiang Tian, 2022. "Optimal Regional Insurance Provision: Do Federal Transfers Complement Local Debt?," Journal of Economics, Springer, vol. 137(1), pages 35-80, September.
    7. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1745-1763, September.
    8. Liu, Qijun & Song, Lijie, 2022. "Do intergovernmental transfers boost intergenerational income mobility? Evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 293-309.

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    More about this item

    Keywords

    Fiscal Federalism; Ricardian Equivalence; Matching Grants;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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