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Economics of Governance

, Volume 12, Issue 4, pp 385–402 | Cite as

How economic integration affects the vertical structure of the public sector

  • Paolo Liberati
  • Antonio Sciala
Original Paper

Abstract

This paper investigates the impact of economic integration on the vertical structure of the public sector within a country. To tackle this issue we set up a model of fiscal federalism, where economic integration is assumed to affect central government tax revenues. The main findings are that when an increase of the impact of economic integration brings about a reduction in central government tax revenues, under certain conditions: (a) it reduces central government expenditure; (b) it reduces general government expenditure; (c) it increases local taxation; (d) it increases the degree of public sector decentralization. Quite interestingly, these results are consistent with different patterns of local public spending and grants to local government.

Keywords

Economic integration Decentralization Fiscal federalism Public sector Government size 

JEL Classification

H77 H50 H11 

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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Dipartimento di Diritto dell’Economia e Analisi Economica delle IstituzioniUniversità Roma TreRomeItaly

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