Recent literature has emphasized that redistributive grant systems may tend to internalize fiscal externalities arising from tax competition. This paper further explores the conditions under which local grant systems enforced by the state government will enhance efficiency. A system of...

We use a stylized model to show that, if transfers to the poor are founded on a security argument, there is a negative trade-o¤ between law enforcement expenditures and criminality. In contrast, if transfers are based on altruism, the correlation between the same variables may appear positive....