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, 1972)
place in the purview of local governments, exhibit specific egalitarianism (Tobin, 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 ...
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, 1972)
place in the purview of local governments, exhibit specific egalitarianism (Tobin, 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.
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