Paper #1226
- Title:
- Tobin meets Oates: Solidarity and the optimal fiscal federal structure
- Authors:
- Xavier Calsamiglia, Teresa Garcia-MilĂ and Therese J. McGuire
- Date:
- July 2010
- Abstract:
- We explore the implications for the optimal degree of fiscal decentralization when people’s preferences for goods and services, which classic treatments of fiscal federalism (Oates, 1972) place in the purview of local governments, exhibit specific egalitarianism (Tobin, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.
- Keywords:
- fiscal decentralization, specific egalitarianism, solidarity, externalities.
- JEL codes:
- H42, H77.
- Area of Research:
- Macroeconomics and International Economics
- Published in:
- International Tax and Public Finance, Vol. 20, Issue 3, 2013, pp. 450-473
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