Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152918
Authors: 
Martínez-López, Diego
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper 484
Abstract: 
This paper studies the provision of public inputs in a federal system. A vertical tax externality is also considered in a simple general equilibrium model used to analyze the efficiency of equilibria under different scenarios. The results show that the state provision of public inputs may affect ambiguously federal tax revenues, depending on the vertical tax externality, amongst others issues. Moreover, it is proved that achieving a second best allocation is not straightforward for a federal government that plays as Stackelberg leader. At this point, the state’s reaction function becomes crucial when the design of vertical grants is restricted.
Subjects: 
Fiscal federalism
productive public spending
vertical externality
JEL: 
H2
H4
H7
Document Type: 
Working Paper

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