ABSTRACT

A conventional justification for government hierarchy in the fiscal federalism literature is based upon asymmetry in policy tools or in information access that is available to different levels of government. This paper demonstrates that even if these asymmetries are eliminated, addition of local (regional) governments to a one-tier central government can be strictly welfare improving.

JEL classification: H41; H72; H73; H11; D72
Keywords: public goods; decentralization

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