Book contents
- Frontmatter
- Contents
- Acknowledgments
- 1 Fiscal Decentralization: Benefits and Problems
- 2 Locational Efficiency and Efficiency-Supporting Tax Systems
- 3 Perfect Interregional Competition
- 4 Interregional Tax Competition for Mobile Capital
- 5 Optimal Structure of Local Governments
- 6 Incentive Equivalence through Perfect Household Mobility
- 7 Efficiency and the Degree of Household Mobility
- 8 Decentralized Redistribution Policy
- 9 Decentralization and Intergenerational Problems
- 10 Informational Asymmetry between the Regions and the Center
- 11 Conclusions
- References
- Index
2 - Locational Efficiency and Efficiency-Supporting Tax Systems
Published online by Cambridge University Press: 04 December 2009
- Frontmatter
- Contents
- Acknowledgments
- 1 Fiscal Decentralization: Benefits and Problems
- 2 Locational Efficiency and Efficiency-Supporting Tax Systems
- 3 Perfect Interregional Competition
- 4 Interregional Tax Competition for Mobile Capital
- 5 Optimal Structure of Local Governments
- 6 Incentive Equivalence through Perfect Household Mobility
- 7 Efficiency and the Degree of Household Mobility
- 8 Decentralized Redistribution Policy
- 9 Decentralization and Intergenerational Problems
- 10 Informational Asymmetry between the Regions and the Center
- 11 Conclusions
- References
- Index
Summary
Each federal state consists of several regions, which are linked by a high degree of mobility of individuals and firms. The high degree of interregional mobility causes allocative problems that cannot be found in a unitary state. The problem of an efficient allocation in a federal state – for a politically predetermined jurisdictional structure – is mainly a problem of the efficient locational pattern. Therefore, the first basic objective of this chapter is to derive the efficient interregional allocation of mobile factors of production, firms, and individuals. Of course, efficiency in a federal state also requires the efficient provision of public goods and factors, but this is achieved in much the same way as in a unitary state. Differences only arise if regions take on the responsibility of supplying some kinds of public goods for which consumption also extends to nonresidents. To achieve the efficient allocation in this case, these spillover effects must be internalized.
The second objective of this chapter is to study whether the efficient allocation can be achieved by decentralized decisions of firms and individuals. The regional tax system is of particular importance. It affects firms' decisions to employ mobile factors of production and is an important determinant of the locational choice of firms, and households make their residential choice dependent on the tax system. A set of tax instruments that allows regions to achieve the efficient locational pattern and simultaneously finance the efficient amount of public services will be called an efficiency-supporting or simply a complete tax system.
- Type
- Chapter
- Information
- Theory of Public Finance in a Federal State , pp. 27 - 39Publisher: Cambridge University PressPrint publication year: 2000