The cost-effective public provision of high-quality goods and services is crucial for long-term growth. We study the determinants of public-sector efficiency (PSE) and in particular the role of citizens´ political values. Indeed, we argue that citizens´ willingness to monitor public affairs is...

This paper considers a positive model of income redistribution with mobile individuals in a federal system. The politician of a jurisdiction makes redistributive policy to maximize political support from poor welfare recipients and rich taxpayers. If only the poor move, a politician...

The interregional mobility of high-skilled workers may induce an underinvestment in local public higher education when subfederal entities independently decide on education expenditures to maximize local output. This well-known result, which is due to a positive interregional spillover of local...

We examine how the overlap of tax bases in a federal economy affects economic growth. In our model the central and local governments have different objectives and each government finances its own public service using taxes levied on the same income tax base. The optimal tax rate for the...

This paper analyzes taxes and transfers in an economy with three distinct levels of government. It is assumed that the different levels of government raise revenue through distortionary income taxation, resulting in vertical fiscal externalities. We show how to implement a socially optimal...

This paper examines how sequential decision-making by two levels of government can result in fiscal imbalances. Federal-regional transfers serve to equalize the marginal cost of public funds between regions hit by different shocks. The optimal transfers minimize the efficiency cost of taxation...

We consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods: one that benefits mobile skilled workers and one that benefits immobile unskilled workers. We derive the jurisdictions' reaction functions for different spending...

Following Keen and Marchand (1997), the paper analyzes the effect of fiscal competition on the composition of public spending in a model where capital and skilled workers are mobile while low-skilled workers are immobile. Taxes are levied on capital and labor. Each group of workers benefits from...

This paper considers the EU regional policy and analyzes two kinds of externalities that can explain why matching grants are used to subsidize regional infrastructure: horizontal pecuniary externalities via capital markets, and positive vertical fiscal externalities created by the financing of...

The paper is a general equilibrium analysis of an energy-tax reform in a federation, measuring the welfare effects and the vertical tax externalities. Vertical tax externalities may arise when two government levels impose taxes on common tax bases. We show how the magnitude and sign of the...