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Tobin meets Oates: Solidarity and the optimal fiscal federal structure

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Abstract
We explore the implications for the optimal degree of fiscal decentralization when people’s preferences for goods and services, which classic treatments of fiscal federalism (Oates, 1972) place in the purview of local governments, exhibit specific egalitarianism (Tobin, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.

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  • Xavier Calsamiglia & Teresa Garcia-Milà & Therese J. McGuire, 2010. "Tobin meets Oates: Solidarity and the optimal fiscal federal structure," Economics Working Papers 1226, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1226
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    Cited by:

    1. Teresa Garcia-Milà & Therese J. McGuire & Wallace E. Oates, 2018. "Strength in diversity? Fiscal federalism among the fifty US states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 1071-1091, August.
    2. Teresa Garcia-Milà & Therese J. McGuire, 2018. "When theory meets practice: can we implement the optimal fiscal federal structure?," Economics Working Papers 1663, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2019.

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    More about this item

    Keywords

    fiscal decentralization; specific egalitarianism; solidarity; externalities.;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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