Centralization Trade-off with Non-Uniform Taxation

Martin Gregor () and Peter Tuchyňa ()
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Peter Tuchyňa: The Center for Economic Research and Graduate Education, Charles University, Prague, Czech Republic, http://www.cerge.cuni.cz/default.asp

Czech Economic Review, 2007, vol. 1, issue 3, 223-253

Abstract: When local public goods are provided by a centralized authority, spillovers are internalized, but heterogeneity in preferences may be suppressed. Besley and Coate (2003) recently examined this classic trade-off for a uniform tax regime with strategic delegation. Here, we extend their approach by allowing for a non-uniform tax regime. We find that centralization with nonuniform taxation unambiguously increases welfare in comparison to uniform-tax centralization. With non-cooperative legislators coming from symmetric districts, our centralization dominates decentralization for any degree of spillovers. In other cases, non-uniform taxation at least improves the odds of centralization, if measured by a utilitarian yardstick.

Keywords: decentralization; taxation; local public goods (search for similar items in EconPapers)
JEL-codes: H40 H70 H72 P51 (search for similar items in EconPapers)
Date: 2007
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