An unfunded expenditure mandate occurs when a local government must provide a good or service by dictate of a higher level of government that does not supply an accompanying revenue source to fully finance the expenditure. This paper is the first to provide empirical evidence on the influence of...

We extend the literature on local income tax competition by allowing for inter-jurisdictional spillovers and imperfect rivalry in consumption of a publicly provided good. Comparing decentralized second-best results of a theoretical model with an efficient benchmark, we identify three...

We study the strategic incentives of regional governments to allocate their budget to public investment and to public consumption expenditures against the background of an incentive-compatible redistribution policy set by the central government. Regional investment changes the productivity...

The paper reconsiders the theory of fiscal federalism in a framework inspired by property-rights theory. We set up a two-period model where on a first stage a region in a federation can expend value-enhancing investments into a public project. The project can be implemented on a second stage,...

We analyze the strategic interaction of regional and federal governments using a model that includes fiscal externalities in the form of inter-regional capital tax competition and technical externalities in the form of inter-regional spillovers. The federal government aims to correct for these...

From the literature on decentralization, it appears that the fiscal vertical imbalance is somehow inherent to multi-level governments. Using a stylized model we show that this leads to a reduction in the extent of redistributive fiscal policies if the maximal tolerable size of government has...

We consider a country whose government provides a bundle of goods and services through a multi-tier administrative organization. We compare the optimal architectures of public governance (i.e. the division of the state into several tiers, the distribution of services among them, their number of...

In fiscal interaction, a policy is evolutionarily stable if, once adopted by all governments, jurisdictions that deviate from it fare worse than those that stick to it. Evolutionary stability is the appropriate solution concept for models of imitative learning (policy mimicking). We show that...

Fiscal decentralization (FD) and fiscal rules (FR) are institutional mechanisms that have been implemented in increasing number of countries by varying measures. This paper investigates empirically the effect of FR on the effectiveness of FD in achieving fiscal discipline. Panel evidence...