International Tax and Public Finance
We examine the decentralized provision of an impure public good by regional governments in a federation similar in certain respects to both the European Union and the United States. The central authority redistributes income and provides matching grants on a per rate basis after it observes the regions’ contributions to the impure public good. Imperfectly mobile workers react to regional and central governments’ policies by establishing residence in their most preferred region. Despite imperfect labor mobility, we show that the allocation of the impure public good and the interregional income redistribution policy are generally efficient in a federation with decentralized leadership.
Caplan, Arthur J. and Emilson C.D. Silva (2011) “Impure Public Goods, Matching Grant Rates, and Income Redistribution in a Federation with Decentralized Leadership and Imperfect Labor Mobility.” International Tax and Public Finance, 18(3), 322-336.