Bulletin n. 1/2015 | ||
June 2015 | ||
John William Hatfield |
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Federalism, taxation, and economic growth | ||
in Journal of Urban Economics , Volume 87 , 2015 , 114-125 | ||
We present a model of endogenous growth where government provides a productive public good financed by income and capital taxes. In equilibrium, a decentralized government chooses tax policy to maximize economic growth, while a centralized government does not do so. Furthermore, these conclusions hold regardless of whether governments are beholden to a median voter or are rent-maximizing Leviathans. However, a decentralized government will under-provide public goods which benefit citizens directly, while a central government beholden to the median voter will optimally invest in such public goods. | ||