Bulletin n. 1/2013
June 2013
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
    • Hatfield, John William
    Revenue decentralisation, the local income tax deduction and the provision of public goods
    in National Tax Journal , volume 66 n.1 ,  2013 ,  97-116
    We consider a model where local and national governments invest in both productive and consumptive public goods using income tax revenue. Local governments will overprovide the consumptive public good if the local income tax is (fully or partially) deductible. However, without Jitll deductibility, local governments will undetprovide local productive public goods. Hence, to reduce the distortions in local governments 'decisions, a welfare-maximizing national government will un-derinvest in both types of public goods, assuming that the level of national public good provision does not directly affect the local governments' decisions. We also consider an alternative fiscal structure where the national government sets one national tax rate and provides matching grants for expenditures on productive public goods; this can result in efficient levels of public good provision at both the local and national levels.
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