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	Document de travail (Working Paper)
Access type	Accès libre
Publication date	2001
Collection	CORE Discussion Papers - 2001/48
Affiliation	UCL - CORE - Center for Operations Research and Econometrics
Keywords	Fiscal Federalism ; Ricardian Equivalence ; Matching Grants
Links	http://www.core.ucl.ac.be/services/psfiles/dp01/dp2001-48.pdf http://hdl.handle.net/2078.1/4204[Handle]

See also
	[boreal:23480]	Matching grants and Ricardian equivalence