Theory of Public Finance in a Federal State

By Dietmar Wellisch | Go to book overview

CHAPTER 6
Incentive Equivalence through
Perfect Household Mobility

We now turn back to a federal state with fixed jurisdictional boundaries. In Chapter 3 we demonstrated that conditions of perfect interregional competition provide local governments with the correct incentives to choose an efficient allocation, provided they have a complete policy instrument set available. However, this result is restricted to small regions, and the question arises of whether there also exist conditions that take away all incentives for large regions to behave strategically. This chapter demonstrates that-under certain conditions-perfect household mobility may be such a mechanism, ensuring that noncooperative government policies of large regions result in an efficient allocation. Of course, this conclusion also holds only if regions have an efficiency-supporting instrument set available. It is of particular importance that regions can make an interregional transfer of resources. Without this instrument, it is generally not possible to achieve the efficient interregional population distribution.

Interregional household mobility is an incentive mechanism for regional governments to choose an efficient allocation because they become aware that any strategic behavior cannot be in the interest of their own residents. If regional governments act rationally, they must take into account migration responses of mobile households to government actions. Consequently, the migration equilibrium is an important and rational constraint on their behavior. By considering migration responses, regional governments take into account the effects of their actions-not only on their own residents' utility but also on the welfare of nonresidents. In the end, a beggar-my-neighbor policy would harm their own residents, since interregional utility differences are incompatible with perfect household mobility. For this reason, regions do not behave strategically. This general conclusion will be explained by using three examples that traditionally serve as classical cases to show why decentralized government policy fails (see Oates 1972; Gordon 1983; Boadway and Wildasin 1984). These examples are the interregional tax export, the existence of public good spillover effects, and interregional tax competition for scarce mobile

-105-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Theory of Public Finance in a Federal State
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 214

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.