IDEAS home Printed from https://ideas.repec.org/p/hhs/ctswps/2016_012.html
   My bibliography  Save this paper

Districts’ co-financing of the central government

Author

Abstract

We study two districts’ voluntary co-financing of a centrally provided public good. Income taxes are collected both by the two local governments and by the central government. We compare outcomes with a surplus-maximizing level of public good provision. We show that co-financing per se does not influence the amount of public good provided. Co-financing and lobbying are substitutes, so that increased co-financing lowers the marginal amount of lobbying by a district. The production of the public good is closer to the surplus-maximizing level with co-financing and lobbying than with only lobbying. Including spillovers into the model, the provision of the public good can fall below the surplus-maximizing level if co-financing exceeds some threshold value. In order to understand the Swedish government’s claim that co-financing increases funds available for public good provision, we must assume that the central government’s ability to tax its citizens is limited. In this case, co-financing can raise the amount of the public good provided compared with pure central government provision.

Suggested Citation

  • Jussila Hammes , Johanna & Mandell , Svante, 2016. "Districts’ co-financing of the central government," Working papers in Transport Economics 2016:12, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    • Handle: RePEc:hhs:ctswps:2016_012
    as

    Download full text from publisher

    File URL: http://www.transportportal.se/swopec/CTS2016-12.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Grossman, Philip J, 1994. "A Political Theory of Intergovernmental Grants," Public Choice, Springer, vol. 78(3-4), pages 295-303, March.
    2. Johanna Jussila Hammes, 2013. "The Political Economy of Infrastructure Planning in Sweden," Journal of Transport Economics and Policy, University of Bath, vol. 47(3), pages 437-452, September.
    3. Lars Feld & Christoph Schaltegger, 2005. "Voters AS A Hard Budget Constraint: On the Determination of Intergovernmental Grants," Public Choice, Springer, vol. 123(1), pages 147-169, April.
    4. Bent Flyvbjerg, 2009. "Survival of the unfittest: why the worst infrastructure gets built--and what we can do about it," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(3), pages 344-367, Autumn.
    5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    6. Cadot, Olivier & Roller, Lars-Hendrik & Stephan, Andreas, 2006. "Contribution to productivity or pork barrel? The two faces of infrastructure investment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1133-1153, August.
    7. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
    8. Bennedsen, Morten & Feldmann, Sven E., 2006. "Informational lobbying and political contributions," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 631-656, May.
    9. Jussila Hammes , Johanna & Nilsson, Jan-Eric, 2015. "The allocation of transport infrastructure in Swedish municipalities: welfare maximization, political economy or both?," Working papers in Transport Economics 2015:4, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    10. Leif Helland & Rune Sørensen, 2009. "Geographical redistribution with disproportional representation: a politico-economic model of Norwegian road projects," Public Choice, Springer, vol. 139(1), pages 5-19, April.
    11. Knight, Brian, 2004. "Parochial interests and the centralized provision of local public goods: evidence from congressional voting on transportation projects," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 845-866, March.
    12. Jussila Hammes, Johanna, 2015. "Political economics or Keynesian demand-side policies: What determines transport infrastructure investment in Swedish municipalities?," Research in Transportation Economics, Elsevier, vol. 51(C), pages 49-60.
    13. Kirschke, Dieter & Hager, Astrid & Jechlitschka, Kurt & Wegener, Stefan, 2006. "Distortions in a Multi-Level Co-Financing System: The Case of the Agri-Environmental Program of Saxony-Anhalt," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25365, International Association of Agricultural Economists.
    14. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    15. Rubinchik-Pessach, Anna, 2005. "Can decentralization be beneficial?," Journal of Public Economics, Elsevier, vol. 89(7), pages 1231-1249, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jussila Hammes, Johanna & Nilsson, Jan-Eric, 2016. "The allocation of transport infrastructure in Swedish municipalities: Welfare maximization, political economy or both?," Economics of Transportation, Elsevier, vol. 7, pages 53-64.
    2. Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
    3. Jussila Hammes, Johanna, 2015. "Political economics or Keynesian demand-side policies: What determines transport infrastructure investment in Swedish municipalities?," Research in Transportation Economics, Elsevier, vol. 51(C), pages 49-60.
    4. Kauder, Björn & Potrafke, Niklas & Reischmann, Markus, 2016. "Do politicians reward core supporters? Evidence from a discretionary grant program," European Journal of Political Economy, Elsevier, vol. 45(C), pages 39-56.
    5. Kauder, Björn & Björn, Kauder & Niklas, Potrafke & Markus, Reischmann, 2016. "Do politicians gratify core supporters? Evidence from a discretionary grant program," VfS Annual Conference 2016 (Augsburg): Demographic Change 145509, Verein für Socialpolitik / German Economic Association.
    6. Jussila Hammes , Johanna & Nilsson, Jan-Eric, 2015. "The allocation of transport infrastructure in Swedish municipalities: welfare maximization, political economy or both?," Working papers in Transport Economics 2015:4, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    7. Bordignon, Massimo & Colombo, Luca & Galmarini, Umberto, 2008. "Fiscal federalism and lobbying," Journal of Public Economics, Elsevier, vol. 92(12), pages 2288-2301, December.
    8. Ben Lockwood, 2008. "Voting, Lobbying, And The Decentralization Theorem," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 416-431, November.
    9. Luisa Schneider & Daniela Wech & Matthias Wrede, 2022. "Political alignment and project funding," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1561-1589, December.
    10. Kemmerling, Achim & Neugart, Michael, 2009. "Financial market lobbies and pension reform," European Journal of Political Economy, Elsevier, vol. 25(2), pages 163-173, June.
    11. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2011. "Do interest groups affect US immigration policy?," Journal of International Economics, Elsevier, vol. 85(1), pages 114-128, September.
    12. Cohen-Blankshtain, Galit, 2021. "On another track: Differing views of experts and politicians on rail investments in peripheral localities," Journal of Transport Geography, Elsevier, vol. 95(C).
    13. Kozo Harimaya & Koichi Kagitani & Hirofumi Tominaga, 2010. "Political Economy Of Government Spending For Trade Liberalization: Politics Of Agriculture Related Government Spending For The Uruguay Round In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 61(2), pages 159-174, June.
    14. Martimort, David, 2019. ""When Olson Meets Dahl": From Inefficient Groups Formation to Inefficient Policy-Making," CEPR Discussion Papers 13843, C.E.P.R. Discussion Papers.
    15. Kemmerling, Achim & Stephan, Andreas, 2015. "Comparative political economy of regional transport infrastructure investment in Europe," Journal of Comparative Economics, Elsevier, vol. 43(1), pages 227-239.
    16. Aray, Henry & Pacheco-Delgado, Janeth, 2020. "Public investment allocation across Ecuadorian Provinces," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    17. Halse, Askill H., 2016. "More for everyone: The effect of local interests on spending on infrastructure," European Journal of Political Economy, Elsevier, vol. 43(C), pages 41-56.
    18. Arghya Ghosh & Kieron Meagher, 2011. "The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty," ANU Working Papers in Economics and Econometrics 2011-556, Australian National University, College of Business and Economics, School of Economics.
    19. Ghosh, Arghya & Meagher, Kieron, 2015. "The politics of infrastructure investment: The role of product market competition," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 308-329.
    20. Jussila Hammes, Johanna, 2012. "The political economy of infrastructure planning in Sweden: supporting analyses," Working papers in Transport Economics 2012:21, CTS - Centre for Transport Studies Stockholm (KTH and VTI).

    More about this item

    Keywords

    Budget constraint; Co-financing; Fiscal federalism; Lobbying; Political economy; Rent-seeking; Spillovers;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:ctswps:2016_012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CTS (email available below). General contact details of provider: http://www.cts.kth.se/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.