Advertisement

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
Article

Abstract

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.

Keywords

Fiscal decentralization Specific egalitarianism Solidarity Free riding Externality 

JEL Classification

H42 H77 

Notes

Acknowledgements

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).

References

  1. Alesina, A., Angeloni, I., & Etro, F. (2005). International unions. American Economic Review, 95(3), 602–615. CrossRefGoogle Scholar
  2. Anand, S. (2002). The concern for equity in health. Journal of Epidemiology and Community Health, 56(7), 485–487. CrossRefGoogle Scholar
  3. Besley, T., & Coate, S. (2003). Centralized versus decentralized provision of local public goods: a political economy approach. Journal of Public Economics, 87(12), 2611–2637. CrossRefGoogle Scholar
  4. Brown, C., & Oates, W. (1987). Assistance to the poor in a federal system. Journal of Public Economics, 32(3), 307–330. CrossRefGoogle Scholar
  5. Card, D., & Payne, A. A. (2002). School finance reform, the distribution of school spending, and the distribution of student text scores. Journal of Public Economics, 83, 49–82. CrossRefGoogle Scholar
  6. Crémer, J., & Palfrey, T. R. (2000). Federal mandates by popular demand. Journal of Political Economy, 108(5), 905–927. CrossRefGoogle Scholar
  7. Debreu, G. (1951). The coefficient of resource utilization. Econometrica, 19(3), 273–292. CrossRefGoogle Scholar
  8. Debreu, G., & Scarf, H. (1963). A limit theorem on the core of an economy. International Economic Review, 4(3), 235–246. CrossRefGoogle Scholar
  9. Garcia-Milà, T., & McGuire, T. (2004). Solidarity and fiscal decentralization. In Proceedings—96th annual conference on taxation, Chicago, Illinois, November 13–15, 2003. Washington, D.C.: National Tax Association Google Scholar
  10. Gramlich, E. (1985). Reforming US federal fiscal arrangements. In J. Quigley & D. Rubinfeld (Eds.), American domestic priorities: an economic appraisal (pp. 34–69). Berkeley: University of California Press. Google Scholar
  11. Gruber, J. (2010). Public finance and public policy (3rd ed.). New York: Worth Publishers. Google Scholar
  12. International Social Survey Programme (2009). Social inequality. Google Scholar
  13. Konow, J. (2003). Which is the fairest one of all? A positive analysis of justice theories. Journal of Economic Literature, XLI(4), 1188–1239. CrossRefGoogle Scholar
  14. Lockwood, B. (1999). Interregional insurance. Journal of Public Economics, 72(1), 1–37. CrossRefGoogle Scholar
  15. Musgrave, R. A., & Musgrave, P. B. (1989). Public finance in theory and practice (5th ed.). New York: McGraw-Hill. Google Scholar
  16. Oates, W. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovich. Google Scholar
  17. Oates, W. (1999). An essay on fiscal federalism. Journal of Economic Literature, XXXVII(3), 1120–1149. CrossRefGoogle Scholar
  18. OECD (2008a). Education at a glance 2008: OECD indicators. http://www.oecd.org/edu/eag2008.
  19. OECD (2008b). OECD health data 2008: statistics and indicators for 30 countries. http://www.oecd.org/health/healthdata.
  20. Pauly, M. V. (1973). Income redistribution as a local public good. Journal of Public Economics, 2(1), 35–58. CrossRefGoogle Scholar
  21. Persson, T., & Tabellini, G. (1996). Federal fiscal constitutions: risk sharing and redistribution. Journal of Political Economy, 104(4), 979–1009. CrossRefGoogle Scholar
  22. Tobin, J. (1970). On limiting the domain of inequality. Journal of Law & Economics, 13(2), 263–277. CrossRefGoogle Scholar

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

Personalised recommendations