Bulletin n. 0/2004
December 2004
CONTENTS
  • Section A) The theory and practise of the federal states and multi-level systems of government
  • Section B) Global governance and international organizations
  • Section C) Regional integration processes
  • Section D) Federalism as a political idea
    • Brueckner Jan K
    Fiscal Decentralization with Distortionary Taxation: Tiebout vs. Tax Competition
    in International Tax and Public Finance , vol. 11, no 2 ,  2004 ,  133 - 153
    This paper explores a question that lies at the intersection of two vast literatures. The goal is to gauge whether the good side of fiscal decentralization, as emphasized by the Tiebout literature, dominates the bad side, as studied in the tax-competition literature. The results, which are derived by numerical simulation, show that either answer to this question is possible. Under favorable conditions, where the curvature of the production function and the dispersion of preferences are both high, the gains from Tiebout sorting are likely to outweigh the loss from the capital-tax distortion, so that the good side of fiscal decentralization dominates. If either of these conditions is absent, however, the bad side can win, making decentralization undesirable. When this happens, the lessons of the Tiebout tradition are overturned, with economic efficiency requiring centralized rather than decentralized provision of public goods
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