How Fiscal Decentralization Flattens Progressive Taxes

How Fiscal Decentralization Flattens Progressive Taxes

We study the tension between fiscal decentralization and progressive taxation. We present a multi-community model in which households differ in incomes and housing preferences and in which the local income tax rate is a function of an exogenous progressive tax schedule and an endogenous local tax shifter. The progressivity of the tax schedule induces a self-sorting process that results in subst...

Partial fiscal decentralization

The fiscal decentralization impulse now sweeping the world often leads to partial decentralization, where subnational governments are funded by central transfers, rather than leading to full local autonomy. Despite the practical important of this arrangement, the literature contains no economic analysis of a partial decentralization regime in a Tiebout-style model. This paper provides such an a...

Globalization and Fiscal Decentralization

The international integration of markets and the decentralization of authority within nation states are two defining trends of the contemporary era. A popular speculation is that globalization has caused a downward shift in the locus of governance by reducing the economic costs of smallness and allowing localities and regions with distinctive preferences to pursue their own political and econom...

Implementation Rules for Fiscal Decentralization

Fiscal decentralization and public debt

Excessive borrowing by subnational governments due to soft budget constraints and intergovernmental coordination failures might be one of the perils of decentralization. Despite a large body of case studies, empirical investigations on whether decentralization increases consolidated public debt levels are still scarce. This paper contributes to the literature by exploring econometrically for se...