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

Armbruster, Stephanie and Hintermann, Beat. (2019) Decentralization with porous borders: Public production in a federation with tax competition and spillovers. International Tax and Public Finance. pp. 1-37.

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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)
UniBasel Contributors:Hintermann, Beat and Armbruster, Stephanie
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Springer
ISSN:0927-5940
e-ISSN:1573-6970
Note:Publication type according to Uni Basel Research Database: Journal article
Language:English
Identification Number:
Last Modified:07 Jan 2020 13:29
Deposited On:07 Jan 2020 13:29

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