Fiscal Competition and Public Education in Regions

Papers in Regional Science, 2005

We examine the effects of tax base sharing on the growth path of an economy in which central and regional governments provide heterogeneous educational services (general and specific training) which increase capital productivity. Our focus is the non co-operative game between two overlapping governments -central and regional -whose objective is to maximise their net tax revenues of educational spending (Leviathan hypothesis). We will show that the dispute between centralisation and decentralisation depends on two effects; the first is a tax effect, which supports centralisation in that tax base sharing leads to overtax the common tax base, and so has a negative effect on the growth path. Second is a public good effect, which defends decentralisation because the very diversity of central and regional educational services has a beneficial effect on the growth path (educational services are imperfect substitutes and "specific assets" of each level of government). We discuss the virtue of tax base sharing in a federation, as an incentive scheme within government's grasp.

International Tax and Public Finance, 1996

This paper analyzes the political economy of education, acquired through a combination of compulsory public schooling and supplementary private education, in the context of an OLG model in which growth is driven by the accumulation of human capital. The level of public schooling, fully funded by a proportional income tax, is determined by majority vote, while supplementary private education is purchased individually. We show existence of a political-economic equilibrium, and examine its characteristics, describing the evolution of the publicprivate mix over time: for moderate parameter values the share of public schooling increases as incomes rise, and inequality falls.

The aim of this paper is to develop a model that considers the existence of two tiers of government providing public goods with the same tax base to finance them. Their rent is related to the level of competition. Citizens need to maximize their own utility starting from these different levels of competition. Therefore, they can decide to turn down the governments to induce them to behave efficiently. Moreover, governments can choose whether to accept the behaviour proposed by citizens or to maximize their rent for a single period of office of the legislature and consequently loose the next elections.

2001

Regions can benefit by offering infrastructure services that are differentiated. Competiton between regions over potential investors is then less direct, allowing them to realize greater benefits from external investors. The two polar cases of full and incomplete information about investors' needs are studied. In both cases, there is regional differentiation. However, fiscal competition is efficient in the former case but not in the latter. Finally, it is shown that free entry in the location market calls for some regulation because of the excessive number of competing regions that would prevail in equilibrium.

The Journal of Socio-Economics, 2004

Despite that the influence of the education and innate capabilities of workers on production has always been a principal concern of educational researchers and economists, not all relevant aspects of the topic have been sufficiently covered. For example, the influence exerted by government as the supplier of education and the responses of the public to the government's decisions have not been studied in detail. This paper attempts to fill this gap. The interaction of government and the public is analyzed using an elementary game theoretic model. The empirical validity of the model is evaluated using information from other studies on workers' productivity and education.

SERIEs

We consider the problem of how to distribute public expenditure among the different regions of an economic entity after all taxes have been collected. Typical examples are: the regions that make up a country, the states of a federal country, or the countries of a confederation of countries. We model the problem as a cooperative game in coalitional form, called the tax game. This game estimates the fiscal resources collected in each region, or coalition of regions, by differentiating between what comes from economic activity within each region and what comes from trade with the other regions. This methodology provides a measure of the disagreement within a region, or coalitions of regions, with respect to the budget received. Similarly, the stability of a budget allocation can be inferred by its situation within the core of the corresponding tax game. We consider the Spanish case as an example and show that the current regional financial system has a moderate degree of instability. W...

Estudios Económicos, 2011

Resumen: Se desarrolla un modelo de votos probabilísticos de transferencias intergubernamentales para explicar la distribución y tamaño de los bienes públicos locales, y encontramos que: i) la competencia por votos de los partidos políticos induce al gobierno central a proveer transferencias regionales que conducen a una provisión Pareto eficiente de bienes públicos locales con y sin externalidades inter-regionales; ii) el gobierno central tiene incentivos políticos para producir bienes públicos diferenciados y uniformes. Se hace también un análisis comparativo que ayuda a entender la influencia de la competencia política, las externalidades inter-regionales y la distribución de la población en la economía sobre el tamaño y distribución de los bienes públicos locales.

Journal of Economics, 2013

In this paper we use an endogeneous-growth model with human capital and heterogeneous agents to analyse the relationship between fiscal federalism and economic growth. Results show that federalism, which allows education-related public good levels to be tailored on the human capital of heterogeneous agents, increases human capital accumulation. This in turn leads to higher rates of growth. The benefits of federalism are stronger the larger the intra-jurisdiction variance of agents' human capital.

Italian Economic Journal, 2016

We consider a two-city model in which two university systems may occur: a centralized system in which a social planner sets the tuition fee and a decentralized system in which universities are free to set their own fees. Within these two systems we also analyze two further scenarios, one with only one university and another with one university in each city. Individuals with heterogeneous innate ability decide whether to go to university according to the average ability (peer group effect henceforth), a tuition fee and mobility costs, if any. In the centralized system, the welfare is maximized by opening two free-of-fees universities, one in each city. This maximizes university participation and eliminates the impediment of mobility costs. In the decentralized system, whether a single-university or a two-university system is more welfare enhancing depends on the mobility costs. When mobility costs are sufficiently low, then having only one university is welfare maximizing. When, instead, mobility costs are high, two universities result to be welfare enhancing.

RePEc: Research Papers in Economics, 2008

In this paper we use an endogeneous-growth model with human capital and heterogeneous agents to analyse the relationship between fiscal federalism and economic growth. Results show that federalism, which allows education-related public good levels to be tailored on the human capital of heterogeneous agents, increases human capital accumulation. This in turn leads to higher rates of growth. The benefits of federalism are stronger the larger the intra-jurisdiction variance of agents' human capital.

Journal of Population Economics, 2000

The aim of this paper is to discuss the process of regional convergence within the framework of an overlapping generations model in which the engine of growth is the accumulation of human capital. In particular, we consider di erent education funding systems and compare their performance in terms of growth rates and pace of convergence between two heterogeneous regions. The analysis suggests that the choice of a particular education system incorporates a possible trade-o between long run growth rate and short run convergence. In such c hoice, the initial capital stock and the extent of regional human capital discrepancy appear as central variables.

Regional Science and Urban Economics, 2001

I analyze a two-period model in which risk-averse students divide their time between risky education, leisure, and work. The educated can migrate. Wage-tax financed transfer to students acts as an insurance, and increases both human capital investment and demand for leisure. I derive sufficient conditions for tax competition to lead to inefficiently low wage tax rates. I suggest that the educated should pay their wage taxes to the region which has financed their education. I show that this would increase taxation and human capital investment, and would also benefit the owners of the complementary factor.

International Tax and Public Finance

We analyze the strategic interaction of regional and federal governments using a model that includes fiscal externalities in the form of interregional capital tax competition and technical externalities in the form of interregional spillovers. The federal government aims to correct for these inefficiencies using a transfer system. If the regional governments are policy leaders (such that federal policy is set conditional on regional choices), they will internalize both fiscal and technical externalities but free-ride on the transfer system. Efficiency can be achieved by introducing a second transfer scheme that is independent of regional public production. If the federal government sets its policy first and can commit itself to it, the outcome is efficient only if matching grants are used that are financed outside of the transfer system.

The article analyzes the public teachers labor market before and after the decentralization reform in basic education of 1992. It shows a simultaneous increase in both the relative price and the relative quantity of public teachers, while it finds no evidence of an increase in relative demand. We argue that these changes can be explained by the interest of authorities in improving education quality throughout a reduction in the student-teacher ratio, and that this reflects an economic rent appropriation process in public schools. An analysis of education premiums suggests that not only teachers, but also public workers are extracting economic rents, but the bureaucrats seem to earn them on a merit basis, while the public teachers seem to obtain them from a political process.

Public Choice, 1984

This essay analyzes the intrajurisdictional allocation of public resources by a governmental agency, using education as the example. The agency's decision is guided, in part, by the preferences of voters within each subarea of the jurisdiction. Voter's choices are influenced by the likely allocation of additional resources resulting from passage of a tax levy, and the tax cost of the levy. After deriving predictions of the relationships between the variables of the model, we estimate a simultaneous equation system. Included are equations specifying the educational production function, voting decisions, and bureaucratic resource allocation. This essay also notes the biases present in prior studies that only considered the 'demand side' of voting models. * We wish to thank the referees and Peter Aranson for many helpful comments and suggesting appropriate tests of the hypotheses.