Book contents
- Frontmatter
- Contents
- Acknowledgments
- 1 Fiscal Decentralization: Benefits and Problems
- 2 Locational Efficiency and Efficiency-Supporting Tax Systems
- 3 Perfect Interregional Competition
- 4 Interregional Tax Competition for Mobile Capital
- 5 Optimal Structure of Local Governments
- 6 Incentive Equivalence through Perfect Household Mobility
- 7 Efficiency and the Degree of Household Mobility
- 8 Decentralized Redistribution Policy
- 9 Decentralization and Intergenerational Problems
- 10 Informational Asymmetry between the Regions and the Center
- 11 Conclusions
- References
- Index
7 - Efficiency and the Degree of Household Mobility
Published online by Cambridge University Press: 04 December 2009
- Frontmatter
- Contents
- Acknowledgments
- 1 Fiscal Decentralization: Benefits and Problems
- 2 Locational Efficiency and Efficiency-Supporting Tax Systems
- 3 Perfect Interregional Competition
- 4 Interregional Tax Competition for Mobile Capital
- 5 Optimal Structure of Local Governments
- 6 Incentive Equivalence through Perfect Household Mobility
- 7 Efficiency and the Degree of Household Mobility
- 8 Decentralized Redistribution Policy
- 9 Decentralization and Intergenerational Problems
- 10 Informational Asymmetry between the Regions and the Center
- 11 Conclusions
- References
- Index
Summary
In Chapter 6, we explained that perfect interregional household mobility may serve as an incentive mechanism for regional governments to abstain from strategic behavior and to internalize all interregional externalities. However, this efficiency result hinges on strong assumptions. We have assumed that only one group of perfectly mobile and identical households lives in the federal state, and that regional governments maximize the utility of a representative resident. Deviations from these assumptions are impediments to an efficient allocation.
There are at least five deviations from this basic model that merit discussion here owing to previous study in the literature and because they either better characterize the situation in federal states or describe the behavior of regional governments at least equally well. First, regions might maximize a utilitarian welfare function consisting of the sum of residents' utilities (Bentham welfare function). Second, there could be several types of mobile households, with all members of one type identical and perfectly mobile but with types differing with respect to preferences and endowments. Third, households could have identical preferences yet differ in their endowments; for example, native residents living in a region usually own a larger fraction of the regional property than nonnative households living in the same region. Fourth, all households may not be equally mobile; there are contributions in the literature studying the extreme scenario of two groups of households – one group with perfectly mobile members and the other with immobile members.
- Type
- Chapter
- Information
- Theory of Public Finance in a Federal State , pp. 118 - 136Publisher: Cambridge University PressPrint publication year: 2000