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Decentralization with porous borders: Public production in a federation with tax competition and spillovers

Hintermann, Beat and Armbruster, Stephanie. (2019) Decentralization with porous borders: Public production in a federation with tax competition and spillovers. WWZ Working Papers, 2019 (03).

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Abstract

We analyze the strategic interaction of regional and federal governments using a model that includes fiscal externalities in the form of inter-regional capital tax competition and technical externalities in the form of inter-regional spillovers. The federal government aims to correct for these inefficiencies using a transfer system. If the regional governments are policy leaders (such that federal policy is set conditional on regional choices), they will internalize both fiscal and technical externalities but free-ride on the transfer system. Efficiency can be achieved by introducing a second transfer scheme that is independent of regional public production. If the federal government sets its policy first and can commit itself to it, the outcome is efficient only if matching grants are used that are financed outside of the transfer system.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Public Economics / Public Finance (Hintermann)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Hintermann, Beat and Armbruster, Stephanie
Item Type:Working Paper
Publisher:WWZ
Number of Pages:41
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2019/03
Last Modified:12 Apr 2019 06:08
Deposited On:01 Apr 2019 15:56

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