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Title:Intergovernmental grants and financial autonomy under asymmetric information PDF Logo
Authors:Herold, Katharina
Issue Date:2009
Series/Report no.:FiFo-CPE discussion papers 09-2
Abstract:This paper analyses and compares the efficiency of alternative incentive compatible grant schemes under asymmetric information relieving subnational governments of excessive debt burden. They allow intervention into local debt, local tax or complete local fiscal policy. In the first case, separation of types can be induced by forcing recipients to inefficient high borrowing and in the second case by imposing inefficient high tax rates. In the last case, fiscal policy of the recipient region is distorted in the period of the exogenous shock. We show that constraining complete financial autonomy leads to the lowest welfare losses. This is due to the fact that complete regulation of local fiscal policy reduces the incentive of contributing local governments to defect from truthful relevation.
Subjects:vertical transfers
subnational debt
asymmetric information adverse selection
financial autonomy
Document Type:Working Paper
Appears in Collections:FiFo Discussion Papers, Finanzwissenschaftliches Forschungsinstitut, Universität Köln

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