This paper provides a simple political agency model to explain the effect of political alignment between different tiers of government on intergovernmental grants and election outcomes. Key features of the model are: (i) rational voters interpret public good provision as a signal of incumbent...

We examine whether US and German state governments pursue sustainable fiscal policies taking into account fiscal transfers. Using panel data techniques we investigate whether the debt-to-GDP ratio had a positive influence on the primary surplus (Bohn-model). We show that including/excluding...

State borders create a discontinuous tax treatment of retail sales. In a Nash game, local tax rates will be higher on the low-state-tax side of a border. Local taxes will decrease from the nearest high-tax border and increase from the low-tax border. Using driving time from state borders and all...

This paper provides a simple model to explain effect of political alignment between different tiers of government on policy choices and election outcomes. We derive precise predictions that, as long as voters attribute most of the credit for providing public goods to the local government: (i)...

Estonian municipalities should perform a broad range of functions, while their fiscal resources are often limited and large disparities in fiscal capacity prevail among them. Moreover, the power to regulate fiscal affairs is mostly in the hands of the central government. We discuss how a strict...

A multi-jurisdictional system is thought to improve, through yardstick competition, accountability. At the same time equalization programs, a common feature of multi-jurisdictional systems, are thought to be a prerequisite for both efficiency of the internal market and the equity objective of...

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...

Using data on federal highway grants from the Department of Transportation's Federal High- way Administration, this paper investigates several questions regarding the political economy of highway funding. We investigate the period 1994 - 2008 and examine whether political alignment and political...