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Horstmann, Ignatius J.
Scharf, Kimberley A.
Year of Publication: 
Series/Report no.: 
Research Report, Department of Economics, University of Western Ontario 2000-11
Along with the rise in income inequality in the U.S., we have observed a simultaneous move toward fiscal devolution and increased government reliance on private provision of public goods. This paper argues that these phenomena are related. We describe a model of jurisdiction and policy formation in which the structure of government provision is endogenous and public good provision levels are determined by a political process that can exploit private motives for voluntary giving. The model predicts that an increase in income inequality leads to decentralization, with local jurisdictions becoming more income-homogeneous than the population as a whole. This reduction in local income heterogeneity, combined with a reduced tax base, results in increased reliance by government on private provision.
fiscal federalism
private provision of public goods
jurisdiction formation
Document Type: 
Working Paper

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