Bulletin n. 3/2008
February 2009
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
    • Nobuo Akai, Motohiro Sato
    Too big or too small? A synthetic view of the commitment problem of interregional transfers
    in Journal of Urban Economics , Volume 64, Issue 3 ,  2008 ,  551-559
    There is a growing body of literature on the commitment problem of interregional transfers. The problem occurs because of an ex post bailout by a central government leading to ex ante adverse incentive consequences for a local government. However, different models have yielded different economic consequences. The local government may be too large, overspending and/or overborrowing, or it may be too small, raising less of its own revenue. In the presence of interregional spillovers, the equilibrium may yield a Pareto-efficient outcome. The present paper aims to synthesize these models, developing a simple decentralized leadership model. A critical question concerns what decision is made ex ante by the local government—namely public expenditure or tax collection—with the remaining policy instrument being residual adjusted by ex post transfers. We discuss how different scenarios affect the equilibrium outcome.
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