Central government subsidies to local public goods

Abstract

We examine the welfare effects of a central government's subsidy for a local public good in a Nash equilibrium model with two types of public goods. We first show that the welfare effect depends on the substitution and evaluation effects. We also investigate the optimal subsidy rate in a second-best framework and explore how the optimal subsidy scheme depends on the relative evaluation of the two types of public goods. Copyright Springer-Verlag Berlin Heidelberg 2002Key words: Local public good, central public good, subsidy, Lindahl price criterion, JEL Classification: H23, H41, H71,

Tax competition, spillovers, and subsidies

“…Many studies, including King (1984); Lee (1995); Lockwood (1999); Figuieres and Hindriks (2002), and Akai and Ihori (2002), among others, follow the conventional argument and use matching grants to stimulate public goods provision by jurisdictional governments.…”

Solution to Toll Highway Cost Allocation Based on Shapley Value

“…Under the equality principle, central government should enable financing from society and control the risk of debts [11]. Shapley value propose a valuable reference allocation proportion for the central government which not only guarantee the reasonable return of investment for varies governments but also consider their ability to shoulder economically.…”

Public Private Partnership between Local Governments and Nonprofits in Japan

“…The relationship between the elasticity of fiscal structure and fiscal discipline is discussed in numerous studies from the perspective of public finance and administration. Indicators representing the fiscal conditions and flexibility of local governments, such as financial capability index, debt expenditure ratio, ratio of recurring profit, and limit ratios for the flotation of bonds, were tested to discover if they influence sound administrative and financial practice (Akai, 2006;Nakano, 2002;Yamashita, 2001). Kornai et al (2003) note that, as a post-bailout measure, based on fairness, efficiency and political concerns, the central government provides public funds to cover payment failures of local governments.…”

“…Transparency in local government improves administrative and financial accountability, increases budget allocation understanding, and improves the welfare of local residents. Akai (2006) reports that improved decision-making rules in internal administration may promote lower costs in public administration. Increased awareness, transparency, and improved decision-making might lead administrators and staff to better understand the objectives and significance of public business, raising their awareness of and responsibility for public governance (Yamashita et al, 2002).…”