International Tax and Public Finance

, Volume 20, Issue 3, pp 450–473 | Cite as

Tobin meets Oates: solidarity and the optimal fiscal federal structure

  • Xavier Calsamiglia
  • Teresa Garcia-Milà
  • Therese J. McGuireEmail author


We explore the implications for the optimal degree of fiscal decentralization when people’s preferences for goods and services—which classic treatments of fiscal federalism (Oates in Fiscal federalism, 1972) place in the purview of local governments—exhibit specific egalitarianism (Tobin in J. Law Econ. 13(2): 263–277, 1970), or solidarity. We find that a system in which the central government provides a common minimum level of the publicly provided good, and local governments are allowed to use their own resources to provide an even higher local level, performs better from an efficiency perspective relative to all other systems analyzed for a relevant range of preferences over solidarity.


Fiscal decentralization Specific egalitarianism Solidarity Free riding Externality 

JEL Classification

H42 H77 



We wish to thank conference participants at the University of Kentucky IFIR and CESIfo Conference on New Directions in Fiscal Federalism; seminar participants at the Federal Reserve Bank of Chicago; participants at the Workshop on Taxation, Public Provision and the Future of the Nordic Welfare Model under the auspices of the Labour Institute for Economic Research, Helsinki, Finland; Andreu Mas-Colell, Wallace Oates, Efraim Sadka, the editor, and two anonymous referees for very useful comments. Guy Arie provided exceedingly helpful research assistance. Calsamiglia acknowledges support from the Spanish Ministerio de Educación y Ciencia (SEJ2006-09993). Garcia-Milà acknowledges support from CREI and from the Spanish Ministerio de Educación y Ciencia (SEJ2007-64340).


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • Xavier Calsamiglia
    • 1
  • Teresa Garcia-Milà
    • 1
  • Therese J. McGuire
    • 2
    Email author
  1. 1.Department of Economics and BusinessUniversitat Pompeu Fabra and Barcelona GSEBarcelonaSpain
  2. 2.Management and Strategy Department, Kellogg School of ManagementNorthwestern UniversityEvanstonUSA

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