1. Inicio keyboard_arrow_right
  2. Investigación keyboard_arrow_right
  3. Tax Decentralization Notwithstanding Regional Disparities


Documento de trabajo

Tax Decentralization Notwithstanding Regional Disparities

  • person Martín Besfamille

    Antonio Andrés Bellofatto

  • class Documento de Trabajo IE-PUC, N° 520, 2019

Abstract: In assessing the desirability for tax decentralization reforms, a dilemma between efficiency and redistribution emerges. By limiting the ability of the central government to redistribute resources towards regions in financial needs, decentralization curbs incentives for excessive subnational spending and enhances fiscal discipline, but may also widen interregional disparities by triggering tax competition for mobile tax bases. We provide a formal treatment of this trade-off, and shed light on the optimaldegree of fiscal decentralization. We find that tax decentralization can be optimal even under Rawlsian social preferences which only weight the welfare of the poorest region in the federation.

Keywords: Fiscal federalism – Tax Competition – Regional Disparities
JEL: H77