Centralization Trade-off with Non-Uniform Taxation
|Author(s):|| doc. PhDr. Martin Gregor Ph.D., Tuchyňa, Peter|
|Type:||Articles in refereed journals|
|ISSN / ISBN:||1802-4696|
|Published in:||The Czech Economic Review, 1 (3), 223-253|
|Keywords:||decentralization, taxation, local public goods|
|JEL codes:||H40, H70, H72, P51|
|Grants:||IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development|
|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.