Decentralized income redistribution in a federal economy

This paper examines decentralized income redistribution in a federation with strategically competing regions and immobile as well as freely mobile households. The mobile households are altruistic toward the immobile households. The basic point of this paper can be stated as follows: the Nash-equilibrium of competing regional governments is Pareto-efficient. There is no role for a higher-level government, meaning there is no need to centralize the redistribution function. This result holds not only if mobile households are altruistic toward immobile residents they reside with but also if they are altruistic toward the Citizens of other jurisdictions.