We extend to a fiscal federalism setting the literature on redistributive in-kind transfers in the presence of nonlinear income taxation. Local governments have a cost advantage, motivating decentralization of the in-kind transfer. The cost structure varies across regions, and the central government cannot observe which region is which. We show that decentralized in-kind transfers can, in this setting, be an even more important instrument for relaxing self-selection constraints, thus, helping redistribution, than in single-government models. We characterize the optimal marginal tax rates and matching grants. The grants have a very different structure than the one derived in earlier studies.

Nonlinear Income Taxation and Matching Grants in a Federation with Decentralized In-Kind Transfers / S. Blomquist, L. Micheletto. - In: INTERNATIONAL ECONOMIC REVIEW. - ISSN 0020-6598. - 50:2(2009 May), pp. 543-575.

Nonlinear Income Taxation and Matching Grants in a Federation with Decentralized In-Kind Transfers

L. Micheletto
Ultimo
2009

Abstract

We extend to a fiscal federalism setting the literature on redistributive in-kind transfers in the presence of nonlinear income taxation. Local governments have a cost advantage, motivating decentralization of the in-kind transfer. The cost structure varies across regions, and the central government cannot observe which region is which. We show that decentralized in-kind transfers can, in this setting, be an even more important instrument for relaxing self-selection constraints, thus, helping redistribution, than in single-government models. We characterize the optimal marginal tax rates and matching grants. The grants have a very different structure than the one derived in earlier studies.
Settore SECS-P/03 - Scienza delle Finanze
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/57344
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