Please use this identifier to cite or link to this item:
Huber, Bernd
Runkel, Marco
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 919
This paper develops a theoretical explanation why it may be optimal for higher-level governments to pay categorical block grants or closed-ended matching grants to local governments. We consider a federation with two types of local governments which differ in the cost of providing public goods. The federal government redistributes between jurisdictions, but cannot observe the type of a jurisdiction. In this asymmetric information setting it is shown that the second-best optimum can be decentralized with the help of categorical block grants and closed-ended matching grants, but not with unconditional block grants or open-ended matching grants.
asymmetric information
categorical block grants
closed-ended matching grants
Document Type: 
Working Paper

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.