Document type
Working paperPublication date
Publication license
Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/116760
How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization
Journal Title
Authors
Director/Tutor
Journal ISSN
Volume Title
Related resource
Abstract
Previous literature widely assumes that taxes are optimized in local públic finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments influences the way local governments decide on public policy. Unlike the presumption, the paper shows that local governments may choose to optimize over expenditures. The result most notably prevails when federal policy subsidizes local taxation. The results offer a new perspective of the efficiency implications of federal policy toward local governments and, thereby, enable a more precise characterization of local government behaviour in fiscal federalism.
Subject
Subject (English)
Citation
Citation
KOETHENBUERGER, Marco. How do local governments decide on public policy in fiscal federalism? Tax vs. expenditure optimization. IEB Working Paper 2010/29. [consulted: 10 of June of 2026]. Available at: https://hdl.handle.net/2445/116760