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Nonlinear income taxation and matching grants in a federation with decentralized in-kind transfers
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
University of Milan and Bocconi University.
2009 (English)In: International Economic Review, ISSN 0020-6598, E-ISSN 1468-2354, Vol. 50, no 2, 543-575 p.Article in journal (Refereed) Published
Abstract [en]

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.

Place, publisher, year, edition, pages
2009. Vol. 50, no 2, 543-575 p.
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URN: urn:nbn:se:uu:diva-132100DOI: 10.1111/j.1468-2354.2009.00540.xISI: 000265425800009OAI: oai:DiVA.org:uu-132100DiVA: diva2:356939
Available from: 2010-10-14 Created: 2010-10-14 Last updated: 2010-12-29Bibliographically approved

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