A conventional justification for government hierarchy in the fiscal federalism literature is based upon asymmetry in policy tools or in information access that is available to different levels of government. This paper demonstrates that even if these asymmetries are eliminated, addition of local (regional) governments to a one-tier central government can be strictly welfare improving.
Bibliographical noteFunding Information:
This paper is based on my dissertation. I am indebted to Andrew Postlewaite for his guidance, and to Nicola Persico and Steven A. Matthews for insightful discussions. The paper was revised while the author was visiting CORE, the hospitality of which is greatly appreciated. The research was partially supported by the European Commission Network-HP RN-CT-2000-00072. I would also like to thank Robin Boadway, Ann M. Carlos, David Cass, Masa Fujita, Hans Gersbach, Robert Inman, George Mailath, Antonio Merlo, Sergio Orioli Parreiras, Ori Pessach, Amir Rabah, Jack Robles, András Simonovits, Jacques-François Thisse and Shlomo Weber along with participants of the Applied Microeconomic theory seminar at the University of Pennsylvania, Political Economy Speaker Series at the University of Colorado and the Conference on “The Economics of Political Integration and Disintegration” at CORE as well as the anonymous referees who provided useful comments. Any remaining errors are mine.
- Public goods
ASJC Scopus subject areas
- Economics and Econometrics