Abstract
This paper deals with two questions which have recentlyreceived considerable attention in both the political debateand the academic literature: First, are fiscal programs largeror smaller when they are (de-)centralized? Second, should suchprograms be (de-)centralized? We answer these questions withina politico-economic model in which voters choose the parametersof a linear income tax taking into account how taxes affect laborsupply and migration decisions. It is shown that a decentralizedpolitical system may lead to a smaller government budget. Theconcept of a veil of ignorance is used to analyze the desirabilityof a decentralized system. It is argued that a decentralizedsystem is preferred under the veil of ignorance only if individualsare not too risk-averse and the income distribution is not toopolarized.
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Janeba, E., Raff, H. Should the Power to Redistribute Income be (De-)Centralized? An Example. International Tax and Public Finance 4, 453–461 (1997). https://doi.org/10.1023/A:1008608914395
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DOI: https://doi.org/10.1023/A:1008608914395