Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198967 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7607
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In assessing the desirability for tax decentralization reforms, a dilemma between efficiency and redistribution emerges. By limiting the ability of the central government to redistribute resources towards regions in financial needs, decentralization curbs incentives for excessive subnational spending and enhances fiscal discipline, but may also widen interregional disparities by triggering tax competition for mobile tax bases. We provide a formal treatment of this trade-off, and shed light on the optimal degree of fiscal decentralization. We find that tax decentralization can be optimal even under Rawlsian social preferences which only weight the welfare of the poorest region in the federation.
Subjects: 
fiscal federalism
tax competition
regional disparities
JEL: 
H77
Document Type: 
Working Paper
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