Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83312
Authors: 
Gregor, Martin
Šťastná, Lenka
Year of Publication: 
2011
Series/Report no.: 
IES Working Paper 13/2011
Abstract: 
We examine a symmetric two-district setting with spillovers of local public spending where a spill-in from the foreign spending is not a substitute, but a complement to domestic spending. Specifically, we assume production of two district-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and cooperative centralization for different spillovers, complementarities and cost-division rules, and control for the effects of strategic delegation and the feasibility of voluntary contributions to the input in the foreign district. We find that centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three novelties: In the absence of transfers, welfare in decentralization increases in spillovers, strategic delegation in decentralization improves welfare, and centralized provision may be non-monotonic in spillovers.
Subjects: 
Spillover
Spill-in
Strategic complementarity
Decentralization theorem
JEL: 
H41
H73
H77
Document Type: 
Working Paper
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