Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19023
Authors: 
Breuille, Marie-Laure
Gary-Bobo, Robert J.
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper 1559
Abstract: 
In the present article, Tiebout meets Laffont and Tirole in the land of Fiscal Federalism. We use a non-trivial Principal-Multi-Agent model to characterize the optimal intergovernmental grant schedule, when the cost of local public goods depends on hidden characteristics and actions of local governments, and under citizen free mobility. We show that local governments earn informational rents, and how optimal local taxes, public good production levels and land prices are jointly distorted at the second-best optimum, as a consequence of free mobility and asymmetric information. The effect of informational asymmetries is to decrease the average production of public goods and to increase the inter-jurisdictional variance of taxes and public-good production.
Subjects: 
asymmetric information
Principal-Agent model
public budget deficits
freemobility equilibrium
fiscal federalism
JEL: 
D72
H7
D82
Document Type: 
Working Paper

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