Matching grants and Ricardian equivalence

This paper investigates the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although somewhat less ective. We also find that optimal matching rates are independent of the number of jurisdictions and their strategic variables contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

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Document type	Article de périodique (Journal article)
Publication date	2002
Language	Anglais
Journal information	"Journal of Urban Economics" - Vol. 52, no. 1, p. 177-191 (Juillet 2002)
Peer reviewed	yes
Publisher	Academic Press (San Diego, USA)
issn	0094-1190
Publication status	Publié
Affiliations	Université de Montpellier I - Faculté de sciences économiques UCL - EUEN/CORE - Center for operations research and econometrics
Keywords	Fiscal Federalism ; Ricardian Equivalence ; Matching Grants
Links	https://doi.org/10.1016/S0094-1190(02)00015-3[DOI] http://hdl.handle.net/2078.1/23480[Handle]

See also
	[boreal:4204]	Matching grants and Ricardian equivalence