Bulletin n. 1/2009 | ||
July 2009 | ||
Blomquist Sören, Micheletto Luca |
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Nonlinear Income Taxation And Matching Grants In A Federation With Decentralized In-Kind Transfers | ||
in International Economic Review , Volume 50 Issue 2 , 2009 , 543 - 575 | ||
We extend to a fiscal federalism setting the literature on redistributive in-kind transfers in the presence of nonlinear income taxation. Local governments have a cost advantage, motivating decentralization of the in-kind transfer. The cost structure varies across regions, and the central government cannot observe which region is which. We show that decentralized in-kind transfers can, in this setting, be an even more important instrument for relaxing self-selection constraints, thus, helping redistribution, than in single-government models. We characterize the optimal marginal tax rates and matching grants. The grants have a very different structure than the one derived in earlier studies. | ||