Decentralized Redistribution in a laboratory federation

Ana Begona Ania Martinez, Andreas Wagener

Publications: Contribution to journalArticlePeer Reviewed

Abstract

The idea of laboratory federalism provides a strong argument in favor of fiscal decentralization. It views autonomous jurisdictions in a federation as laboratories where new policies can be tested at low risk for the entire system. If successful, these policies will spread out by imitation; otherwise, they will be discarded. Studying this idea in a dynamic setting of fiscal competition, we show that, due to externalities between jurisdictions, policies that appear successful and are therefore mimicked do not necessarily enhance welfare, and vice versa. Specifically, in the classical framework of decentralized, rich-to-poor income redistribution with labor mobility the long-run outcome entails a complete breakdown of redistribution with zero subsidies to the poor everywhere.

Original languageEnglish
Pages (from-to)45 - 59
Number of pages11
JournalJournal of Urban Economics
Volume93
DOIs
Publication statusPublished - May 2016

Austrian Fields of Science 2012

  • 502024 Public economy
  • 502047 Economic theory

Keywords

  • CMI
  • Cat2
  • VWL
  • BEHAVIOR
  • PERFORMANCE
  • STABILITY
  • Mobility
  • BOTTOM
  • FEDERALISM
  • Laboratory federalism
  • YARDSTICK COMPETITION
  • EVOLUTION
  • Redistribution
  • RACE
  • Asymmetric ESS
  • INCOME-REDISTRIBUTION
  • TAX COMPETITION

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