How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization
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How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization. / Köthenbürger, Marko.
In: Journal of Public Economics, Vol. 95, No. 11-12, 2011, p. 1516-1522.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - How do local governments decide on public policy in fiscal federalism?
T2 - Tax vs. expenditure optimization
AU - Köthenbürger, Marko
N1 - JEL classification: H7; H3; H1
PY - 2011
Y1 - 2011
N2 - Previous literature widely assumes that taxes are optimized in local public finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments influences the way local governments decide on public policy. Unlike the usual presumption, the paper shows that local governments may choose to optimize over expenditures. The result holds when federal policy subsidizes local taxation. The results offer a new perspective of the efficiency implications of federal policy toward local governments and, thereby, enable a more precise characterization of local government behavior in fiscal federalism.
AB - Previous literature widely assumes that taxes are optimized in local public finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments influences the way local governments decide on public policy. Unlike the usual presumption, the paper shows that local governments may choose to optimize over expenditures. The result holds when federal policy subsidizes local taxation. The results offer a new perspective of the efficiency implications of federal policy toward local governments and, thereby, enable a more precise characterization of local government behavior in fiscal federalism.
KW - Faculty of Social Sciences
KW - fiscal federalism
KW - fiscal policy
U2 - 10.1016/j.jpubeco.2011.06.006
DO - 10.1016/j.jpubeco.2011.06.006
M3 - Journal article
VL - 95
SP - 1516
EP - 1522
JO - Journal of Public Economics
JF - Journal of Public Economics
SN - 0047-2727
IS - 11-12
ER -
ID: 36077817