Discussion Paper Details

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Title: A Theory of Distributional Conflict, Voluntarism and Segregation

Author(s): Ignatius J Horstmann and Kimberley Scharf

Publication Date: November 2002

Keyword(s): fiscal federalism, jurisdiction formation and private provision of public goods

Programme Area(s): Public Economics

Abstract: Along with the rise in income inequality in the US, there is evidence of a simultaneous move toward fiscal devolution and increased government reliance on private provision of public goods. This Paper argues that these phenomena are related. We describe a model of jurisdiction and policy formation in which the structure of government provision is endogenous and public good provision levels are determined by a political process that can exploit private motives for voluntary giving. The model predicts that an increase in income inequality leads to decentralization, with local jurisdictions becoming more income-homogeneous than the population as a whole. This reduction in local income heterogeneity, combined with a reduced tax base, results in increased reliance by government on private provision.

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Bibliographic Reference

Horstmann, I and Scharf, K. 2002. 'A Theory of Distributional Conflict, Voluntarism and Segregation'. London, Centre for Economic Policy Research.