Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Fiscal externalities in a three-tier structure of government

Fiscal externalities in a three-tier structure of government Purpose – Federal systems are often more sophisticated than assumed in the literature. In many cases, at least three tiers of government are involved in federal decision making. The purpose of this paper is to cast some light on this increasingly important issue in fiscal federalism. Design/methodology/approach – In a model with three tiers of government, the author analyzes corrective policies in the presence of fiscal externalities generated by federal redistribution. Findings – The author identifies an additional qualitative incentive effect, particularly for intermediate governments. They behave strategically to attract additional redistribution funds from outside, though still using corrective policies to provide investment incentives toward their own regions. The results also suggest that differently from the USA the federal system of the EU may lead to inefficiently low regional investment. Originality/value – The presented model is a first step toward analyzing strategic behavior and the effect of corrective policies in more complicated federal set ups with three tiers of government involved. This is relevant for federal structures such as Germany or the USA, as well as for government interactions at the international level. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Fiscal externalities in a three-tier structure of government

Journal of Economic Studies , Volume 41 (6): 18 – Nov 10, 2014

Loading next page...
 
/lp/emerald-publishing/fiscal-externalities-in-a-three-tier-structure-of-government-TJYziOk0r7
Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0144-3585
DOI
10.1108/JES-03-2013-0033
Publisher site
See Article on Publisher Site

Abstract

Purpose – Federal systems are often more sophisticated than assumed in the literature. In many cases, at least three tiers of government are involved in federal decision making. The purpose of this paper is to cast some light on this increasingly important issue in fiscal federalism. Design/methodology/approach – In a model with three tiers of government, the author analyzes corrective policies in the presence of fiscal externalities generated by federal redistribution. Findings – The author identifies an additional qualitative incentive effect, particularly for intermediate governments. They behave strategically to attract additional redistribution funds from outside, though still using corrective policies to provide investment incentives toward their own regions. The results also suggest that differently from the USA the federal system of the EU may lead to inefficiently low regional investment. Originality/value – The presented model is a first step toward analyzing strategic behavior and the effect of corrective policies in more complicated federal set ups with three tiers of government involved. This is relevant for federal structures such as Germany or the USA, as well as for government interactions at the international level.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Nov 10, 2014

There are no references for this article.