Suchergebnisse

This paper compares the case of fiscal decentralization (FD) with an intergovernmental transfer rule to the case of fiscal centralization (FC) from a theoretical perspective while focusing on Markov-perfect Nash equilibrium by a continuum of citizens, local governments and a central government, which interact strategically. Simulation analysis shows both the degree of spillovers and capital mobility play a role in the comparison of these two cases. In the presence of spillovers, the welfare of FD case is higher than the one of FC which is an unexpected result but points out the positive effect of a redistribution rule in FD model in terms of welfare. On the other hand, the growth rate of FD is lower than FC case when there are spillovers. So, fiscal discipline, provided by the redistribution rule, prevents inefficiently low tax rates which pull down the growth rate. In addition, when spillovers are not allowed, capital mobility determines which case is superior.

This paper analyzes the welfare implications of a transfer mechanism in a fiscally decentralized economy where local governments select their tax collection effort to maximize their lifetime utility. We consider a transfer rule that both punishes for the lack of efficiency in tax-collection and compensates for the deviation of pre-tax or transfer income from a target level; in addition, a portion of transfers is considered to be directed towards investment. Simulations of the model's optimal solution reveal that increasing punishment always results in increased steady state effort, despite the disincentives that increasing income compensation or directed investment may generate. Increasing punishment also improves capital accumulation the lower the rate of directed investments and the lower the tax rate. Further, efficiency in tax collection is achieved the lower the rate of directed investment and the higher the punishment rate.