Centralization Trade-off with Non-uniform Taxation
|Title:||Centralization Trade-off with Non-uniform Taxation|
|Journal or Publication Title:|
AUCO Czech Economic Review, 1, 3, pp. 223-254
|Uncontrolled Keywords:||decentralization, taxation, local public goods|
When local public goods are provided by a centralized authority, spillovers are internalized, but heterogeneity in preferences may be suppressed. Besley and Coate (2003) recently examined this classic trade-off for a uniform tax regime with strategic delegation. Here, we extend their approach by allowing for a non-uniform tax regime. We find that centralization with nonuniform taxation unambiguously increases welfare in comparison to uniform-tax centralization. With non-cooperative legislators coming from symmetric districts, our centralization dominates decentralization for any degree of spillovers. In other cases, non-uniform taxation at least improves the odds of centralization, if measured by a utilitarian yardstick.